Friday, March 11, 2011

Aflac (AFL) - Puts Trade on Earthquake and Pro Order Flow Analysis

AFL is trading $54.92, down 1.4% with IV30™ up 14.4%. The LIVEVOL® Pro Summary is below.


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Aflac Incorporated (Aflac) is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries. Its principal business is supplemental health and life insurance, through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), which operates in the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan).

The company has traded over 7,600 contracts in the first hour on total daily average option volume of just 4,890. More specifically, over 6,00 puts have traded on 2,772 average, yielding a 3.7:1 ratio to calls. The action is n the front month ATM and 50 puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the puts have an existing large OI. As far as I can tell, that existing OI is long -- based on the trades on 2-4-2011.

I found the date when OI initially rose from the level II pop-out from the Options Tab (click on the strike). The action today looks like long Mar 55 puts. Here's a very important note on order flow. First, the largest trades snapshot is included below.

Now, holding the CTRL button down for the two trades I've highlighted (the two largest ones) - we can see that the markets were bid up (look at the highest bid other than the price that traded.

So these trades were buyer initiated and I'm guessing the vast majority (if not all) of the quick hit news services/trading alert systems will read these as trades on the bid, so "sales." That's clearly incorrect, in my opinion.

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

We can see a substantial vol difference between the front two months. AFL

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 dropped substantially of late -- two days ago AFL closed at $56.81. On a side note, I read this tweet from CNBC: "Aflac Pledges 100 Million Yen to Red Cross Disaster Relief for #Japan." Good for them.

This is trade analysis, not a recommendation.

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