Thursday, March 31, 2011

Nabors Industries (NBR) - Puts Trade Ahead of Earnings

NBR is trading $30.28, up 0.7% with IV30™ up 4.5%. The LIVEVOL® Pro Summary is below.


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Nabors Industries Ltd. (Nabors) is a drilling contractor that conducts oil, gas and geothermal land drilling operations in the United States Lower 48 states, Alaska, Canada, South America, Mexico, the Caribbean, the Middle East, the Far East, Russia and Africa.

I've done some call order flow, here's one with puts trading ahead of earnings. We project earnings in late April, but after the Apr monthly cycle.

The company has traded over 46,000 contracts on total daily average option volume of just 6,516. Puts have traded on a 2.3:1 ratio to calls. The action is in the May 28 puts where more than 27,500 puts have traded. On the call side, 8,500 Jun 34 calls have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the May 28 puts and Jun 34 calls are mostly opening (compare OI to trade size). In fact, the Jun 34 calls zero OI. Both strikes look like substantially purchases. Needless to say the 27,500 puts would be a gigantic OI for this stock.

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

The skew is quite pretty, actually. The upside in Apr is bent up. It's interesting to note that the ATM in Apr is below the other two months but the upside skew is actually above the other two months. Probably worth some examination.

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 been rallying over the last six months. On the vol side, IV30™ is now elevated to HV20 (short-term realized vol) and the HV180 (long-term realized). Again, earnings are likely out of this cycle (i.e. not tomorrow)

Possible Trades to Analyze
1. Spread the upside skew in Apr:
a. For the slightly bullish:
Buy the Apr/May 34 call spread for $0.54. This sells ~43 vol, purchases ~41 vol, and owns the earnings vol month.
b. For the more bullish:
Buy the Apr/May 34/33 call spread for $0.79. This sells ~43 vol, purchases ~41.5 vol, and owns the earnings vol month but also owns slightly more deltas than #1a.

I don't see anything else that jumps out at me simply b/c of the normal looking skew. Please don't miss understand that as a bullish stance on this stock. I have no opinion at all on this stock and just a reminder -- 27,500 puts have traded in the earnings month.

This is trade analysis, not a recommendation.

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