Tuesday, March 29, 2011

Macy's (M) - Calls Trade but Skew Sits

M is trading $23.83, up 2.9% with IV30™ up 4.0%. The LIVEVOL® Pro Summary is below.


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Macy’s, Inc. (Macy’s) is a retail organization operating retail stores and Internet Websites under two brands (Macy’s and Bloomingdale’s) that sell a range of merchandise, including men’s, women’s and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods in 45 states, the District of Columbia, Guam and Puerto Rico... You now, 'Macy's'...

This is another story about upside order flow similar to the one I posted on MWW, earlier.

The company has traded over 26,000 contracts on total daily average option volume of just 10,653. Calls have traded on a 15.7:1 ratio to puts with the action in the Apr 24, 25 calls (~16,000 total contracts). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls in Apr could be mostly opening (compare trade volume to OI). I don't know what's wrong with me today, but these look like sales too (like in MWW). Having said that, with vol up, this does point to buy side orders, substantially.

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

Unlike MWW earlier, the skew in M hasn't moved to order flow, with the possible exception in the Apr 26.

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 that the stock has stayed in a channel of late but that the IV30™ has tended to trade above historical for the last two months. IV30™ was as high as 40.30 on 3-16-2011.

Possible Trades to Analyze
The skew hasn't really moved so there aren't any obvious kinks to sell (or buy). This one really has two possibilities that I'd like to analyze, though neither is astonishingly insightful (I guess they never are...).

1. Sell the vol:
With IV30™ elevated to both the short-term and long-term historical realized vols, a sale seems worth examining. The caveat of course is, the vol was at 40 just a couple of weeks ago, so patience may be a virtue (isn't it always?).
Sell the Apr 24 straddle @ $1.34.
Cover with a long strangle.

2. Buy the upside:
A bunch of spreads, obviously, are possible. The Apr 25/26 call spread costs ~$0.15 and does sell slightly higher vol than it purchases.

This is trade analysis, not a recommendation.

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  1. I find your blog fascinating, but, to be honest, I don't understand some of the syntax and the points that you are making. Is there a primer I can read somewhere that explains some of the theories you are discussing here?


  2. Hi Clark,

    Thanks for the note.

    - Volatility Primer written by me and Kevin Lund:
    -- go to appropriate page

    Then, try the "Top Blogs" to the right at the top of this page.

    - Trading Skew & Price Discovery
    - Understanding Option Skew
    - How Pros Trade Earnings Vol
    - Custom Scans & Trading