Tuesday, March 8, 2011

Mesabi Trust (MSB) - Depressed 60 Day Vol and Earnings

MSB is trading $37.44, up 0.2% with IV30™ down 1.4%. The LIVEVOL™ Pro Summary is below.


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Mesabi Trust (the Trust) conserves and protects the Trust Estate, and collects and distributes the income and proceeds there from to the Trust’s certificate holders.

I found this stock using a real-time custom scan. This one hunts for low vols. The third month also has an earnings event and this stock can move on that news.

Custom Scan Details
Stock Price >= $7 <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

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 intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The MSB Charts Tab (vol only) is included (below). IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).

We can see:
IV60: ~50.87
HV60: 66.35
HV180: 62.47

So, IV60 is depressed relative to the intermediate-term and long-term realized movement of the stock. We can also see that the stock moved a good amount off of earnings last cycle but for the last several weeks, the stock has just muddled around. This is of particular importance if we're examining getting long the juice.

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

Note that Jun ATM vol is ~52, which is higher than Mar and Apr. The next earnings date for MSB is projected to be either right at the end of the Apr cycle or just after. Apr expo is 4/16 and the last two earnings dates in April (last two years) were 4/16 and 4/15 respectively... Tricky.

Possible Trades to Analyze
1. Start simple:
Buy the Jun 35/40 strangle for $5.70. Wow, that's a lot of premium... Just sayin'

2. Add some sales:
Do #1 but also sell the Jun 30/45 strangle @ $2.25 for a $3.45 total debit. Note that this does leave a net position with a 0.44:1 MaxGain:MaxLoss.

3. Add some risk:
Do #2 but sell the short strangle twice, yielding a $1.20 debit but naked short the wings if the stock gaps below $27 (ish) or above $48 (ish).

This is trade analysis, not a recommendation.

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