Friday, February 18, 2011

Genworth Financial (GNW) - Vol Rise and Upside Skew

GNW is trading $14.14, up 2.8% with IV30™ up 19.1%. The LIVEVOL® Pro Summary is below.


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Genworth Financial, Inc. (Genworth) is a financial security company dedicated to providing insurance, wealth management, investment and financial solutions to more than 15 million customers, with a presence in more than 25 countries.

I found this stock using a custom scan I built searching for names where IV30™ is up at least 10% today. The scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

GNW is also active -- nearly 30,000 contracts have traded against a daily average of 8,338. Calls have traded on more than a 10:1 ratio to puts. The action is in the Mar 14 and 15 calls where nearly 16,000 contracts have traded in total. With vol up and the skew bending, I feel like there is a good portion of buying interest in these calls. A snippet of the Stats Tab is included below.

The GNW 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).

IV30™: 42.04
HV20™: 42.71
HV180™: 46.88

We can see the IV30™ is popping but is still below the HV180™ (long-term realized) and barely below the HV20™ (short-term realized). We can also note that the stock has moved up of late as well.

The Skew Tab snap (below) illustrates the vols by strike by month.

The skew looks pretty normal, though the upside does bend up a bit in Mar. Finally, let's look to the Options Tab.

Possible Trades to Analyze
1. Trade the Mar upside skew:
Buy the Mar 14/15 call spread for $0.38. This yields a 1.6:1 MaxGain:MaxLoss ratio with $0.14 in parity and sells slightly higher vol than it purchases in a call spread.

2. Calendar spread the upside skew:
A vol difference has opened up between the Mar and Jun upside.
a. Buy the Mar/Jun 15 call spread (~ 5 vol point difference)
b. Buy the Mar/Jun 16 call spread (~ 7.25 vol point difference)

3. Skip it:
This could just be one to keep an eye on. Maybe add it to your watchlist and put an alert in your LVP for IV30™ hitting 44 (or whatever). If the vol keeps popping, the skew or the calendar skew could become more interesting.

This is trade analysis, not a recommendation.

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