Thursday, March 10, 2011

Cablevision (CVC) - Exploding Vol and Calendar

CVC is trading $35.35, down 0.8% with IV30™ up 6.4%. The LIVEVOL™ Pro Summary is below.


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Cablevision Systems Corporation (Cablevision), through its subsidiary, CSC Holdings, LLC (CSC Holdings), is a cable operator in the United States. Cablevision also operates cable programming networks, entertainment businesses, telecommunications companies and a newspaper publishing business.

I actually like to use these large(ish) down days in the market when VIX pops to find some nice calendar spreads. I wrote about one in my column (SPRD), but I like CVC as well.

First, on a wild digression -- for you market makers out there. I saw that CVC trades ~ 3,100 contracts a day on $0.40 wide markets ATM for a $35 stock with 35 vol and the underlying is cab wide with depth. I was like, dude! This is the best market making stock ever... Then I realized the volume is actually tiny, some massive divi crosses make the average sort of useless. Then I was like, oh... dude... NVM...

Today CVC came up on the real-time custom scan for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

There are no obvious kinks and the upside does what an upside usually does -- just kind declines softly. The vol though, is worth a look.

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 most notable phenomenon here is the vol. Check out how elevated IV30™ is relative to both the short-term and long-term historical vols. Something is a foot.

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

Potential Trades to Analyze
First, do some homework. CVC had earnings on 2-16-2011 BMO, so the vol isn't related to that, but something feels like it's coming as the option markets reflect a ton of risk (read: IV™ is very high).

1. Calendar spread Mar/Apr delta neutral.
Sell the Mar 35 straddle @ $1.65.
Buy the Apr 35 straddle for $3.20.
I don't know if there's enough liquidity in those options to get those prices -- this is likely not a stock to reach on, NBBO is too wide.

2. Calendar spread Mar/Apr delta negative.
Buy the Mar/Apr 34 put spread for $0.65 and bet on a small downturn in Mar.

3. With the vol elevated (like GMCR yesterday), buy options.
The Mar 35 straddle costs ~$1.85 (if you can get good prices) -- the stock has been stuck in a range for a while but it has been as low as $21.68 within the last 52 weeks and as high as $38.08

This is trade analysis, not a recommendation.

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