Monday, April 11, 2011

Endeavor Silver (EXK) - Calls Trade, Calendar Opens, Vol Rises

EXK is trading $11.89, down 3.9% with IV30™ up 4.4%. The LIVEVOL™ Pro Summary is below.


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Endeavour Silver Corp. (Endeavour) is a Canadian mineral company engaged in the evaluation, acquisition, exploration, development and exploitation of mineral properties. The Company produces silver-gold from its underground mines at Guanacevi and Guanajuato in Mexico.

Today EXK came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. Combined with the order flow and earnings dates, this is an interesting one to watch.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

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 back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Let's look to the Skew Tab (below).

April appears as a dot (rather than a line) b/c none of the other OTM options (other than the 12.5 calls) are bid. Still, we can see obvious vol disparity between the front three months. Nicely enough, earnings are due out in the May cycle -- tricky...

Before we check out the Charts Tab, let's look to the Stats Tab and the order flow today.

Nearly 9,000 contracts have traded today on total daily average volume of just 2,637. Calls have traded on a 7.1:1 ratio to puts with most of the action in the Apr 12.5 calls (that looks like buying, today) and the May 12.5 calls (looks long or two-sided). The existing OI in the Apr 12.5 calls actually looks long to me, so I believe OI will increase tomorrow on that line.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Note the stock's recent rise and the noticeable divergence between the IV30™ and HV20 and HV180. In English, the short-term implied vol is rising as the stock's realized movement has been less volatile.

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

Potential Trades to Analyze
1. Calendar the Apr/May upside:
Apr/May call spread for $0.85. This sells ~88 vol and purchases ~84 vol while owning earnings for less (in terms of vol) than the front month in a stock that has been rising in an industry that has been rising.

2. Calendar with owning Aug
a. Either a straight Apr/Aug 12.5 call spread and then if that works out, selling May as well (note: this sells earnings vol) or --
b. A diagonal: Own the Aug 12.5 calls and sell the May 15 calls. A little more risk -- also sell the Apr 12.5 calls and if that works out, after May (and short the 15 calls), sell the Aug 15 calls. That would allow one long option to anchor three sales of elevated vol while following the delta trend of the stock and the order flow.

This is trade analysis, not a recommendation.

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