Thursday, March 3, 2011

Rowan Companies (RDC) - Vol and Skew Move on Call Order Flow

RDC is trading $42.97, up 0.6% with IV30™ up 1.7%. 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

Rowan Companies, Inc. (Rowan) is a provider of international and domestic contract drilling services. Rowan also owns and operates a manufacturing division that produces equipment for the drilling, mining and timber industries.

The company has traded over 9,951 contracts on total daily average option volume of just 1,917. Calls have traded on a 4.2:1 ratio to puts. The action is in the front month, where ~8,000 calls have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. The Mar 42, 43 calls seem to be purchases, the 45 seem like potentially sales and the 46 calls are ambiguous, though I lean toward purchases.

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

We can see the upside vol in Mar (red line) has bent upwards to the order flow while Apr (yellow) has not. The vol difference isn't huge, but it's notable.

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 steadily climbed over the last few months, including a pop off of earnings. On the vol side (bottom), we can see the IV30™ dropped off of earnings (as expected), but has now turned back up and sits squarely above the historical vols (both short-term and long-term).

Possible Trades to Analyze
1. Call spread in Mar:
Any number of call spreads are on the board where the lower strike has slightly lower vol than the higher strike which is generally not the case with call spreads.

2. Calendar spread the upside skew:
The Apr OTM calls show slightly lower vol than the Mar calls, possibly because of order flow. Note that the ATM vol is higher than the OTM calls in April -- the opposite of the trend in Mar.

3. Sit and watch: Maybe the skew divergence (either in Mar or in between Mar and Apr) will open up wider.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment