Wednesday, February 23, 2011

Energy XXI (EXXI) - Elevated Vol Might Be Cheap

EXXI is trading $33.20, up 1.8% with IV30™ up 1.0%. The LIVEVOL™ Pro Summary is below.


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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching. The EXXI Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see:
IV30™: 49.51
HV20™: 31.06
HV180™: 41.14

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock.

But... the 52 wk high in IV30™ is 92.37. Given the unrest in Northern Africa and the Middle East, the vol in energy companies is pretty fluid right now. What is high? What is low?

Let's look to the Options Tab (below).

Note that Mar vol is just three points higher than Apr, Jun and Sep. I don't see any really interesting trades to analyze in this one yet -- the skew is actually quite normal looking, so no immediate vol scalps are apparent to me and a delta bet feels like a coin flip in either direction.

This is trade analysis, not a recommendation.

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  1. How would you use live vol pro to choose the better of several energy stock calls at a JU/JUL expiration?

  2. I'd use the compare feature on CHarts. Plot HV90 and IV90 for a few names all on one chart and start with the one that showed the greatest vol opportunity.