Thursday, February 3, 2011

Kohlberg Kravis Roberts (KKR) - Stock Rallies and Vol Jumps

KKR is trading $16.25, up 1.7% with IV30™ popping up 19.6%. The LIVEVOL™ Pro Summary is below.


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Not that you need me to post it, but: Kohlberg Kravis Roberts & Co. is a private equity firm specializing in acquisitions, leveraged buyouts, management buyouts, and mezzanine investments in large cap companies.

There's an interesting story about a tax fine problem that could benefit KKR. I've included the link: Dogan Yayin-court rulings in tax dispute upheld

The company has traded over 13,000 contracts in the first hour (ish) on total daily average option volume of just 540. Calls have traded on a 2.6:1 ratio with puts. The action is in the Feb 15, 17.5 and Mar 15 calls as well as the Mar 17.5 puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that puts are mostly opening (compare OI to trade size) as are the Feb 17.5 calls. My best guess is that the Feb calls are purchases (both lines), the Mar puts are purchases and the Mar calls are sales (less sure about this one).

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

We can see the vol difference opening up between the front and back months. In particular, the 17.5 calls have a substantial upside skew in Feb.

Finally, 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 the stock has popped of late, including an earnings cycle. On the vol side (bottom), we can see the IV30™ has now gone well above the long-term and short-term realized.

Possible Trades to Analyze
1. Trade The Feb/Mar upside skew:
Buy the Feb/Mar 17.5 call spread for $0.20. This is about a 10 point vol scalp.

2. Trade the Feb/Jun upside skew:
Buy the Feb/Jun 17.5 call spread for $0.65. This more like a 14 point vol scalp, but obviously it's much more expensive than #1, while gaining several months in time value.

3. Trade the Feb/Mar downside skew:
Buy the Feb/Mar 15 put spread for 0.20. This is about a 7 point vol scalp.

This is trade analysis, not a recommendation.

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