Tuesday, February 22, 2011

Ultra DJ Crude Oil (UCO) - Vol Pops, Crude Pops on Middle East Unrest

UCO is trading $11.76, up 8.7% with IV30™ up 11.9%. The LIVEVOL® Pro Summary is below.


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I posted a trade on this ETF for TheStreet.com's Options Profit, so I can't really discuss trades, but this is still one of the more interesting issues trading today.

The investment (UCO) seeks to provide daily investment results (before fees and expenses) that correspond to twice the daily performance of the Dow Jones/UBS Crude Oil Sub-Index.

A WJS.com article authored by Dan Strumpf sums up the action:

“The North African nation, a member of the Organization of Petroleum Exporting Countries, holds the largest reserves in Africa and accounts for about 1.7% of world crude output. The unrest in Libya has caused about 50,000 barrels a day of oil output to be shut down, an official at the International Energy Agency said Monday.

Light, sweet crude for March delivery soared $4.87, or 5.7%, to $91.07 a barrel from Friday's settlement on the New York Mercantile Exchange, after rising to as high as $94.49 a barrel in intraday trading. The contract expires at the end of trading Tuesday. The more heavily traded April contract rose $4.86, or 5.4%, to $94.57 a barrel.”

The ETF has traded nearly 17,000 contracts on total daily average option volume of just 4,345. Calls have traded on a 4.6:1 ratio with puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. With the vol popping it feels like mostly purchases. The Mar vol is up 5.5 points (12.1%) and Apr vol is up 1.8 points (3.5%).

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

The skew is bid to the upside in Feb. One oddity, it looks like the ATM vol is cheaper in Mar than April.

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 index has puttered around a bit -- then popped up today. The IV30™ is still lower than higher... I mean to say, the vol hasn't (yet) ripped through the long-term historical volatility trend. In English, if there's more "scary" news from the OPEC nations in Africa and the Middle East, vol can go higher.

This is trade analysis, not a recommendation.

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