Monday, February 7, 2011

Coinstar (CSTR) - Gapping Stock and Skew Difference

CSTR is trading $39.85, up 2.3% with IV30™ down 0.4%. The LIVEVOL® Pro Summary is below.


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I just noticed this company of late. It has a nice little trend of large stock moves and the front two months show a little vol difference that may be worth investigating.

The Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see three large stock moves of late:
1. 10-29-2010: $46.26 ---> $57.58 (earnings)
2. 1-14-2011: $56.95 ---> $41.50
3. 2-4-2011: $44.24 ---> $38.96 (earnings)

Owning vol on any of those days would have been nice. Let's turn to the Skew Tab.

We can see the front month is elevated to the back, in particular to the upside. Finally, let's turn to the Options Tab.

Possible Trades to Analyze
1. Calendar spread the upside skew (a couple ways to do this):
a. Buy the Feb/Mar 42.5 call spread for $0.85.
b. Buy the Feb/Mar 45 call spread for $0.55.

2. Sell the vol in Feb:
Sell the Feb 40/42.5 strangle @ $1.80.
Buy the Feb 37.5/45 strangle for $0.50.
Collect $1.30 and risk losing $1.20.

3. Buy the Mar vol:
Buy the Mar 40 straddle for $4.60.

This is trade analysis, not a recommendation.

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