Friday, March 18, 2011

Avis Budget (CAR) - Falling, Elevated Vol

CAR is trading $16.22, up 3.3% with IV30™ down 8.8%. The LIVEVOL™ Pro Summary is below.


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Avis Budget Group, Inc. (Avis Budget) provides car and truck rentals and ancillary services to businesses and consumers in the United States and internationally.

I found this stock (like the first one today) using a real-time custom scan that search for elevated vol.

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The CAR Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).


We can see:
IV30™: 57.95
HV20™: 45.39
HV180™: 45.95

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. We can also see that the IV30™ has dipped today (duh) -- but that ~58 ish vol is still well above the short-term and long-term historical vols (HV20 and HV180, respectively).

Let's look at the Skew Tab.

I've included this chart simply to note that although the vol is elevated, and dipping hard today, the skew has maintained a normal shape -- there doesn't seem to be any order flow that's really pushing (or pulling) vol on a strike or set of strikes... which ultimately means, no obvious skew trades to analyze...

Finally, let's look to the Options Tab (below).

We can see that Apr and May vols are in the upper 50's while Aug is in the low 50's.

Possible Trades to Analyze
Since there's little goin' on with skew, in order to sell vol it looks like analyzing selling the ATM would be one way to go.
Sell the Apr 16 straddle @ $2.00.
Buy the Apr 14/18 strangle for $0.70.
Risk $0.70 to make $1.30.

I don't see any other trades that really peak my interest, but certainly if you have conviction on the delta side (stock direction), a bunch of call (or put)spreads exist. I think this company may also be a potential takeover candidate -- just something to note and account for in risk analysis.

This is trade analysis, not a recommendation.

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