Tuesday, February 8, 2011

Red Hat (RHT) - Calls Trade, Vol and Skew Pop

RHT is trading $44.61, up 1.1% with IV30™ up 11.9%. The LIVEVOL® Pro Summary is below.


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Red Hat, Inc. (Red Hat) is engaged in providing open source software solutions to the enterprise, including its core enterprise operating system platform, Red Hat Enterprise Linux, its enterprise middleware platform, JBoss Enterprise Middleware, its virtualization solutions and other Red Hat enterprise technologies.

The company has traded over 9,500 contracts on total daily average option volume of just 2,869. Calls have traded on a 28:1 ratio to puts with the Feb 45 and 46 calls being the most active. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the 45 and 46 calls in Feb are mostly opening (compare OI to trade size). Oddly, the Feb 45 calls look like sales though vol is up 4.5 points in Feb and 3.8 points in Mar.

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

The skew definitely has some bumps as the volume pushes each line vol around. Notice the upside skew in both months and the vol difference between the two.

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).

Note on the vol chart on the bottom. The IV30™ is spiking and now all three vol measures on the chart are essentially even.

IV30™: 36.40
HV20™: 36.95
HV180™: 34.16

Possible Trades to Analyze
1. Trade Feb skew to the upside:
Buy the Feb 47/48 call spread for $0.15. I would note that this is quite a bit OTM, though it does sell slightly higher vol than it purchases in a call spread (which is unusual).

2. Trade Feb vs Mar skew to the upside:
Sell the Feb 48 call @ $0.20.
Buy the Mar 48 call for $0.95.
Pay $0.75 to own Mar against Feb.

This is trade analysis, not a recommendation.

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