Tuesday, April 5, 2011

XL Capital (XL) - Vol up, Stock Up, Earnings Calendar Up

XL is trading $25.17, up 0.7% with IV30™ up 6.7%. The LIVEVOL® Pro Summary is below.


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XL Group plc (XL) through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and, professional firms, insurance companies and other enterprises on a worldwide basis.

This one has some interesting order flow and a skew difference month to month.

The company has traded nearly 11,000 contracts on total daily average option volume of just 3,235. All but 208 contracts have been calls yielding a 51:1 call:put ratio. The action has been in the Apr 26 calls where over 6,600 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Apr 26 calls are mostly opening (compare OI to trade size). The trades look like substantially purchases. Note that the next earnings release is due out on May 3rd.

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

It's the upside skew the caught my attention. The ATM vol in May is above Apr (yellow is above red in the middle) as it should be given that earnings are due out in the May cycle. But, to the upside, the order flow has pushed the Apr 26, and most notably the Apr 27 call vol up above May. Hmmm...

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 IV30™ is elevated to the historical as the order flow has pushed the option prices higher. At the same time the stock has been pushing up.

Possible Trades to Analyze
1. Calendar spread the upside
With earnings due out in May and upside vol in Apr more expensive than May, an interesting trade to examine is owning that earnings vol for less than Apr.
Buy the Apr/May 27 call spread for $0.31.

2. Skew spread Apr
The 27 call vol also presents an interesting trade to examine intra-month.
Buy the Apr 26/27 call spread for $0.15 and sell higher vol than is purchased in a call spread.

3. Sell elevated front month vol.
The front month ATM vol is ~28.5. With HV20 and HV180 at 25.14 and 25.99 respectively, it could be worth analyzing selling that vol.

This is trade analysis, not a recommendation.

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