Tuesday, March 1, 2011

iStar Financial (SFI) - Upside Skew Stands Out on Order Flow

SFI is trading $9.94, down 0.5% with IV30™ up 4.1%. The LIVEVOL® Pro Summary is below.


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iStar Financial Inc. is a finance company focused on the commercial real estate industry.

The company has traded just under 95,000 contracts on total daily average option volume of just 4,679. Calls have traded on a 13.7:1 ratio to puts. The largest trade looks like a Jul 10/13 call spread bought for $1.00 ~40,000x (~80,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action in the front two months. I've omitted Jul because it's the front months that I find more interesting. For what it's worth, the OI in July (both lines) was ~ 10,000, so the 40k today are mostly opening.

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

This is where the vol gets interesting. Note how bid the Mar 11 calls are relative to the ATM in Mar, AND the ATM and OTM calls in Apr and Jul. In English, selling the Mar 11 calls covered by a variety of different options seem like reasonable trades to analyze.

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 climbed over the last 6 months. The 52 wk low is $2.70 and the stock has reached as high as $10.08.

Possible Trades to Analyze
To me, the most interesting trades here are selling the Mar 11 call elevated vol and covering any number of ways.

1. Skew spread in Mar:
Buy the Mar 10/11 call spread for $0.25. That scalps ~ 8 points of vol, copies order flow, gains deltas in a stock that has been going straight up and leaves a MaxGain:MaxLoss of 3:1.

2. Skew Spread the Calendar
a. Buy the Mar/Apr 10/11 call spread for $0.55 and sell ~ 10 points higher vol than you purchase.
b. Buy the Mar/Jul 10/11 call spread for $1.05 and also sell ~ 10 points higher vol than you purchase.
NB: 2b is a different trade than 2a. If the stock goes up well past $11 in the Mar cycle, the 2b trade could be a loser, unlike 2a.

3. Calendar Spread the OTM calls
3a. Buy the Mar/Apr 11 call spread for $0.15 and scalp about 12 vol points.
3b. Buy the Mar/Jul 11 call spread for $0.70 and scalp about 12 vol points.

NB: The next earnings cycle for SFI is projected to be in the May cycle (not April). So owning Jul versus owning Apr is quite a different position.

This is trade analysis, not a recommendation.

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