Wednesday, March 16, 2011

Entergy (ETR) - Nuclear Energy's Future Shows Near-term Risk

ETR is trading $66.99, down 2.2% with IV30™ exploding up 31.1%. The LIVEVOL® Pro Summary is below.


For a limited time we are offering a FREE real-time trial to Livevol® Pro for non-professional traders. Click for Free Trial Offer

Entergy Corporation, together with its subsidiaries, operates as an integrated energy company in the United States. It primarily engages in electric power production and retail electric distribution operations. The company operates through Utility and Non-Utility Nuclear segments.

It's that last sentence that caught my attention. How does the future of nuclear energy look given the news out of Japan?... However it looks, the option markets reflect a LOT more risk, at least in the near term.

The company has traded over 7,000 contracts on total daily average option volume of just 601. The action has been in the Apr 65 puts where over 5,000 have crossed the tape. They look like substantially purchases. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the puts are mostly opening (compare OI to trade size). When looking down the entire option chain for ETR, I don't see any OI even half as large. I don't really see any large stock trades tied to these options, but I do note that the volume is already more than the total daily average -- so stock is active as well.

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

The skew looks quite nice actually -- a normal shape with Apr vol trading higher than Jun and a slight opening of a vol difference to the downside with that order flow in the Apr 65 puts (highlighted in the chart).

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).

This is an awesome chart. In the vol portion (bottom), we can see that the IV30™ has ripped from ~15 to now more than twice that since just 3-9-2011. The stock has plummeted over that same time, from as high as ~$74 to now into the mid sixties.

Possible Trades to Analyze
The question here again is simple -- is the vol elevated and therefore expensive (a sale), or is it elevated, but not reflecting high enough risk (i.e. still too low)?

On 3-9-2011 the ATM ($75 strike) straddle was worth ~$4.10 with ~ $0.80 in parity. That straddle is now worth more than $8.

In terms of skew, since I don't see any obvious kinks, I don't see any obvious spreads to discuss. This one would be more of a vol direction (or stock direction) bet than a skew trade.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment