Monday, March 21, 2011

ACE - Bullish Earnings Bet

ACE is trading $61.83, up 1.6% with IV30™ down 9.6%. The LIVEVOL® Pro Summary is below.


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ACE is a global insurance and reinsurance organization, serving the needs of commercial and individual customers in more than 170 countries.

This is just a quick note on some order flow in an earnings month.

The company has traded 6,885 contracts on total daily average option volume of just 619. The largest trade, which accounted for 6,000 contracts, was a May 55/65 risk reversal (sell puts/ buy calls). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size). The largest OI in front two months is just 2,724, so this is a large order. I don't really see any large stock orders at the time of this trade and the total stock volume is actually below average, so this feels like it might be unhedged (unless it's a hedge in and of itself to a short stock position).

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

The skew has maintained a pretty normal shape -- it would have been nice if the upside in May was bid as that might have been interesting to examine as a strike to spread around.

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).

The vol is still elevated to the short-term and long-term trend in the stock (realized movement), but IV30™ is dipping after it jumped on general unrest in the world.

As I mentioned at the top, this is a large trade (~10x daily average volume) in a month when earnings are due out. It might be worth writing this one down and seeing if any more large one sided order flow (bullish in this case) continues to stream in on the earnings month.

This is trade analysis, not a recommendation.

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