Tuesday, May 31, 2011

Rediff.com India (REDF) - Depressed Vol

REDF is trading $10.48, up small with IV30™ down 4.0%. The LIVEVOL® Pro Summary is below.



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Rediff.com India Limited (Rediff) along with its subsidiaries, is engaged in business of providing online Internet based services, focusing on India and the global Indian community.

I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price >= $7
IV30™ - HV20™ <= -8 >= -40
HV180™ - IV30™ >=7
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >= 32

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 short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20) 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), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

The REDF Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).





For the stock portion, we can see that the price has found a quiet period of late. Less than two months ago this sock was trading below $8. Six months ago (ish), the stock was trading below $4.

On the vol side, we can see IV30™ has collapsed of late -- falling from 123.35 down to 92.88 in eight calendar days. Today we have:

IV30™: 92.88
HV20: 116.42
HV180: 111.88

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock. Looking further out, we can also see:

IV60: 94.12
HV60: 111.34
---
IV90: 93.35
HV90: 105.66

So implied is trading below historical on all three time horizons (30, 60 and 90 day).

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



Possible Trades to Analyze
The ATM straddle in Jun is priced at ~ 88 vol -- which relative to other historical vols is low (or lower). July is priced a bit higher at around 95 and Oct is priced in between -- closer to 90.

To bet on a move near-term, the Jun options might be an interesting trade to examine. To play a "dead" period over summer but also wanting to own the vol in Oct, one interesting trade to examine could be owning the Oct vol and selling Jun. Then if that works out, looking to sell Jul. If that works out, perhaps follow that up with a sale of Aug and or Sep.

This is trade analysis, not a recommendation.

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Bridgepoint Education (BPI) - Month-to-month Vol Difference Opens

BPI is trading $22.78, up 1.6% with IV30™ up 0.9%. The LIVEVOL® Pro Summary is below.



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Bridgepoint Education, Inc. (Bridgepoint) is a accredited provider of postsecondary education services. The Company offers associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences.

I wrote about this stock for TheStreet.com -- the OptionsProfits service, so no specific trade analysis. Having said that, this is a worthy vol one to check out.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

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.

Looking to the Skew Tab (below).



We can see the vol is elevated from Jul to Jun. Noticeably the vol diff between the ATM puts (22.5 strike) is substantially lower than the vol diff between the OTM puts (20 strike).

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).



A few things to note:
On the stock side, we can see BPI has gapped a couple of times of late – on an earnings release and most recently on an analyst upgrade. On the vol side we can see the IV30™ has been rising as the stock ha gapped – but the HV20 is actually higher than the implied.

Specifically:
IV30™: 59.03
HV20™: 64.90
HV180™: 48.83

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



This is trade analysis, not a recommendation.

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Friday, May 27, 2011

Elan (ELN) - Upside Skew is Bid to Call Accumulator

ELN is trading $9.34, up 2.1% with IV30™ up 5.2%. The LIVEVOL® Pro Summary is below.



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Elan Corporation, plc (Elan) is a neuroscience-based biotechnology company. Elan is focused on discovering and developing advanced therapies in neurodegenerative and autoimmune diseases, and in realizing the potential of its scientific discoveries and drug delivery technologies.

This is an order flow note -- the upside in ELN is of interest today. The company has traded 11,629 contracts on total daily average option volume of just 3,532. Calls have traded on a 5:1 ratio to puts with the Jul 10 calls changing hands over 4,600x. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that those calls have a fairly large OI, already at 3,140. From what I can tell, that OI looks long (though I'm not sure) and the trades today look long as well. So, today may be a double down. The OI in those calls was just 811 as of 4-25-2011 and it may be as high as 7,000 (ish) after the long weekend.



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



We can see the upside is bid in both the front and second months. I've highlighted the 10 strike (where the action is). For both months, the 11 strike shows higher vol than the 10 (which shows higher vol than the 9).

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).



Check out the stock price -- it popped on 5-25-11 and today is trading at another 52 wk. high... During this stock rise, IV30™ has remained elevated to the short-term and long-term historical vols.

Possible Trades to Analyze
1. Intra-month skew trade
The Jun 9/10 c/s shows a ~5 point vol scalp and the Jul 10/11 shows ~2.5.

2. Inter-month skew trade
An interesting position to examine that trades both vol and deltas is the Jun/Jul 11/10 c/s. This isn't that interesting selling $0.05, but the Jun 11 @ $0.10 against a $0.50 purchase is a 5 point vol trade and owns deltas in the back.

This is trade analysis, not a recommendation.

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SunPower (SPWRA) - Trading a Tender Offer and Negative Rates

SPWRA is trading $20.86, up small with IV30™ up 14.3%. The LIVEVOL® Pro Summary is below.



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I normally write this at the end of each blog, but we get it upfront here:
This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Ok, here we go -- how to trade a tender offer (or rights offering).

Let's start with the news. The fun began on 4-28-2011 with this news:
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French oil company Total SA said on Thursday that it will offer $23.25 for up to 60 percent of the shares of solar panel maker SunPower Corp.
The move will put Europe's third-largest oil company into the growing solar business.

The offer values SunPower at $2.3 billion, and SunPower shares jumped on the news, rising $6.39, or nearly 40 percent, to $22.51 in aftermarket trading after the deal was announced. Total shares fell 15 cents to $63.65.
The companies said Total would also offer SunPower up to $1 billion in lending.
Source: AP
---

Let's start simple. The price as of this writing is $20.86, of which 60% of that is comprised of $23.25 tender"able" shares, and 40% is comprised of "some number" where the stock market is pricing SPWRA after the tender. i.e. where the other 40% of shares will go. The simple math is:

$20.86 = (0.6)$23.25 + (0.4)($Market Expection Post Tender)
Yielding -----> Market Expectation Post Tender = $17.275

How the tender works:
If you own SPWRA stock (actual stock, not calls!), you can tender your shares and hope to get as many as possible turned into $23.25 in cash. The guess is that 60% of the shares will be turned into that amount. The tender date is Jun 14th, 2011 (for now).

Ok, that seems easy enough, let's look to the Options Tab since we'll be referring to it quite often.



Possible Trades to Analyze
If you assume the stock price is fair value, then owning stock for $20.86 is a push. Let's look at other trades to analyze.

1. If the stock is going to open at $17.27 (ish) on Jun 15th, just buy some puts! The Jun 21, 20, 19, and 18 puts are all under priced, clearly! But, no...

Tenders get pushed back all the time. In fact, I believe this one was already delayed a few weeks. That means those puts turn into something we like to call nothing.

2. Buy puts in July
Well, here's where it gets tricky. The 21 strike in July implies a forward stock price of:
$21 - $4.10 (about fair value in puts) + 0.45 (about fair value in calls) = $17.35.

What do ya know, right around the price that the stock price is implying. In English, the stock is VERY hard to borrow and that negative rate makes puts more expensive than calls. How much more expensive?

Well, if the rate was normal, then the Jul 21 puts would cost:
($21 - $20.86) (i.e. parity) + 0.46 (i.e. the value of the calls) = $0.60. But, in fact, those puts are worth ~ $4.10. So, REALLY expensive. Now purchasing puts isn't obviously cheap, it might even be expensive.

3. Buy synthetic puts in July
Ah ha -- no we're thinkin'. We can get those puts for $0.60 by purchasing the calls and selling stock one-to-one. Through put call parity those calls become puts. Awesome, except...

Shorting this stock costs a lot of money and it's literally hard to borrow (literally hard to find shares). The risk with HTB is several fold and includes but is not limited to location risk, buy-ins, rate changes and stock pops on short squeezes.

In this case, the risk is even greater. On tender, a chunk of the shares you're short might be tendered -- meaning as the short stock holder, you will be forced to pay $23.25 to buy the stock back. Ouch...

As an added risk -- if this thing is hard to borrow now, what happens when 60% of the float goes away when Total buys them through the tender? Uh, yeah -- even harder to borrow.

4. The sleeper trade
Let's look at the facts. A large company is willing to pay $23.25 a share for a majority of the company. By selling puts and buying calls on the same line in July, we have seen that you can own synthetic stock for ~ $17.35 a share.

And what if the tender moves past Jul expo. (which is possible)? This position owns real stock (not synthetic) for $17.35 -- that can be used to tender @ $23.25 or simply sold at the prevailing market price (which right now is $20.86).

The risk? Huge, actually. What if the tender offer fails or goes away? What if the stock plummets after the tender well below the "expected" price? After all, the float will be small and a bunch of long shareholders that are simply holding stock now to play this tender are going to dump the stock. A few weeks before this tender, SPWRA was a $15 issue. The 52 wk low is $9.61. Gulp...

5. Bet on the stock rising
Did you consider a short squeeze or even a second bid? A higher bid if the tender fails? A competing bid?

Check out the skew (below):



The Jul and Sep 20 lines are bid -- interesting...

Alright, there are dozens more creative ways trades to analyze this through spreads, etc., but hopefully this illustration made the rules more clear. And of course, rule #1 -- everything changes every second.

One last thing to consider -- SPWRA has A and B shares -- both are up for 60% tender.

This is trade analysis, not a recommendation.

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Thursday, May 26, 2011

Tekelec (TKLC) - Order flow Hits Vol... Almost

TKLC is trading $8.82, up 4.6% with IV30™ down 11.1% as of ~ 12:20pm EST. The LIVEVOL® Pro Summary is below.



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I traded this one on TheStreet.com (OptionsProfits), so no specific trade analysis in this note. But, this is another interesting vol phenomenon -- seeing some better opportunities of late.

Tekelec is a provider of core network solutions. The Company’s solutions help enable billions of people and devices to talk, text, and access the Web.

I noticed the stock today because of some put side order flow in Aug. The Aug 7, 8, 9 and 10 puts have traded heavily today – all look like sales. Option Monster (David Russell) sent out a note that the 7/8 was a put spread sale and they’re usually good with order flow, so I’ll side with them for now. Either way, it looks like vol sellers and delta buyers. The Livevol® Pro Stats Tab and Day's Largest Trades snaps are included below.





We can see puts have traded on a 97.6:1 ratio to calls, with 11,423 total puts trading on daily average volume of just 180 (406 total contracts for calls and puts). Let’s look 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).



We can see the stock plummeted down on an earnings release two cycles ago. Since then it has traded in a relatively tight range. The IV30™ is in between the short-term and long-term historical vols. Let's look to the Options Tab, now.



The vol seller today hit ~42 vol in Aug at the open. We can see at the top of the Options Tab that Aug vol is now down 6.4 points to 42.17. Jul vol is also down today, by 5.1 points. Interestingly, the front month vol is unchanged. Let’s turn to the Skew Tab.



What we can see is that the Jun upside to the 9 strike is bid (bent up) and the vol has not decreased today (although Jul and Aug have). The seller hit ~42 vol (green line), and right now the Jun vol is right around that level.

All in all, an interesting result -- that Jun vol is sticky relative to the back and the overwhelming order flow.

This is trade analysis, not a recommendation.

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Guess? (GES) - Lucky Guess? On Earnings

GES is trading $45.35, up 13.1% off of earnings with IV30™ down 27.2%. The LIVEVOL® Pro Summary is below.



Yesterday, on close GES was trading $40.10. The Livevol® Pro Summary from the close is included below.



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This is just a quick note on the order flow yesterday into the earnings release -- I'm sorry I didn't get a note out on it, I was watching it all day. The company traded 47,720 contracts on total daily average option volume of just 2,900. Calls traded on 4.6:1 ratio to puts. The largest trade (which accounted for the lion's share of volume) was a Jun 40/42 call spread for $0.64 done ~15,000x. The Stats Tab and Day's biggest trades snapshots are included (below).





That spread is now worth $1.50 and quite possibly will close at $2.00 on Jun expo. The details are below:

Opening Trade: 15,000x Jun 40/42 call spread for $0.64 -- $960,000 debit.
Today: 15,000x Jun 40/42 call spread @ $1.50 -- $2,250,000 credit.
So, ~1.35 MM in 12 hours. Nice GES?

This is trade analysis, not a recommendation.

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Wednesday, May 25, 2011

IMAX - Call Buyer Bets to Upside, Earnings Date Ambiguous

IMAX is trading $34.30, up small with IV30™ up 0.6%. The LIVEVOL® Pro Summary is below.


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IMAX Corporation together with its wholly owned subsidiaries, is an entertainment technology companies, specializing in motion picture technologies and presentations... You know, the movies!

This is an odd one in that the company hasn't announced even a range for the next earnings date. The last cycle was 4-28-2011 (I believe), so a projection in the Aug cycle is a starting point... I called IR and other than speaking with a nice lady, didn't get any color on the next date.

The company has traded 10,102 contracts on total daily average option volume of just 1,693. All but 118 contracts have been puts, yielding an 84.6:1 call:put ratio. The action has been in the Sep 40 calls: IMAX Sep 40 calls vs 33.85 stk, cust paid 1.25 for 7241. Color from Mike Bristow of the Vtrader Group. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). When looking down the entire option chain for IMAX, I don't see any OI larger than 1,500 with the exception of the Jun 35 calls (which looks short), so this trade is quite large for this name.



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



We can see how depressed the Jun vol (red) is relative to the back two months -- so the option market is pricing earnings after the Jun option cycle. I've highlighted the Sep 40 calls -- really not much of a skew reaction, if any. The shape of the back two months, and in particular Jul, is flat as opposed to downward sloping... Hmm...

I've also included the skew chart from the first trading day of May (5-2-2011).



Look how the vol as of that date was in fact a "normally" shaped downward skew.

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).



The IV30™ looks depressed (if only slightly) to the short-term and long-term realized vols. With earnings seemingly due out after Jun, this vol chart looks about right. IV60 is in fact ~42.50 relative to an HV180 of 42.43. In English, the further out vol is almost identical to the long-term historical realized vol. I'd expect Aug vol to start increasing (maybe) once an earnings date is confirmed.

We can also see in the chart how the stock has dipped of late (as has the entire market).

Possible Trades to Analyze
Betting on an earnings date is both fun and risky. I don't see any obvious skew trades that are worth examining so any other vol play would at least in part be just that -- an earnings date bet.

For the record, completely separate from the stock itself, I love IMAX!

This is trade analysis, not a recommendation.

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VanceInfo Technology (VIT) - Exploding Vol ,Dipping Stock on Fraud Clusters

VIT is trading $21.16, down 3.5% with IV30™ popping up 20.2% as of ~11:05am EST. The LIVEVOL® Pro Summary is below.



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VanceInfo Technologies Inc. is an information technology (IT) service provider and an offshore software development company in China.

I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here, but this is some of the most interesting stuff going on right now in the option market, IMO. The stock has had a rough time of late, sinking more than 33% since 5-13-2011. The drop started with a poor earnings announcement. He’s a quick summary:

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What: VanceInfo Technologies (NYSE: VIT ) dropped 12% in intra-day trading today after reporting inline first-quarter earnings.

So what: Non-GAAP EPS of $0.20 grew 10% year over year and met the consensus estimate. Management expects second-quarter non-GAAP EPS of $0.22, up 10% year over year and inline with the consensus estimate.

Now what: It's a rare quarter that VIT doesn't beat the consensus estimate and GAAP EPS growth is slowing. Although revenue growth is strong at about 29% year over year, EPS is suffering from a rising share count, lower government subsidies, wage inflation and revenue mix shift to China (which is affected by the Chinese New Year holiday in the first quarter).
Source: The Motley Fool, written by Cindy Johnson.
---

Today the stock drop and vol pop continues along with bearish order flow. The Chinese accounting (auditor) problems loom over the entire market. Here’s a quick snippet from Reuters:

---
NEW YORK/BANGALORE, May 23 (Reuters) - (Reuters) - The auditor at Longtop Financial Technologies Ltd (LFT.N) quit and a U.S. regulator has opened a related probe, deepening concern about possible accounting irregularities at Chinese companies.
Source: Reuters
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Today, over 7,000 contracts have traded today on total daily average volume of just 1,031. Puts have traded on a 7.2:1 ratio to calls. Jun 20 puts are the most active – they look like purchases. The Livevol® Pro Stats Tab is included below.



Let’s 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).



We can see the stock drop off of earnings (and then the continued drop). We can also the IV30™ has exploded to over 110. Let’s turn to the Skew Tab to investigate line-by-line and month-to-month vols.




The Skew shape is “normal” and the front two months have similar shapes with the front elevated to the back. I do note the abrupt downside skew – the ATM vol in Jul is ~100 compared to the Jul 12.5 puts (~149.5) and the Jun 17.5 puts (~143 vol). Let’s look to the Options Tab.




I actually think the Chinese accounting scandal will worsen as fraud tends to cluster (see my paper "The Fraud Swap" published a few years ago). The question is how far can these companies go down? Is it an Enron, MCI WCOM thing? Do they go to $0? Or is this a down 50% thing, where the skew to the downside might be a sale? Do these stocks rally?  I guess we'll have to see...

This is trade analysis, not a recommendation.

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Nexen (NXY) - OTM Call Accumulator, Skew Bends

NXY closed on Monday at $22.25, up small with IV30™ up 3.1%. The LIVEVOL® Pro Summary is below.



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Nexen Inc. (Nexen) is an independent, Canada-based global energy company. It operates in two segments: Oil and Gas, and Energy Marketing.

The company traded 11,761 contracts on total daily average option volume of just 2,368. Calls traded on a 2.2:1 ratio to puts with the heaviest action in the Jun 24 calls which traded 5,989x. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Jun 24 calls traded substantially over OI -- today the OI has gone from 1,373 to 4,433, so more than 3,000 of those contracts were opening. That existing OI was long (IMO) and yesterday they opened 'longer.' Note also the OI in the surrounding strikes -- the Jun 22.5 calls show 13,403 OI and the Jun 25 calls show 8,190. I believe the Jun 22.5 OI is long and the Jun 25 OI is short. Taken all together, large positions are opened in the Jun OTM calls, long the low strikes and short the highest strike.

It's notable that while the Jun 24 calls have opened recently, the other two lines opened a while ago (not recent).



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



We can see that the upside skew in both Jun and Jul has bent upwards. The upside skew does turn back down in Jul, but not in Jun (as of yesterday).

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).



The stock has had a tumultuous ride of late -- reaching nearly $27 within the last month (ish) and now in the $22 range. IV30™ is now squarely above both the short-term and long-term historical vols (which is a common theme in many stocks of late as the market sells off).

Possible Trades to Analyze
Check the skew this morning and perhaps there are some nice skew trades to analyze. If that upside remains bid, perhaps intra-month, inter-month and diagonal inter-month spreads are worth examining. It will be interesting to watch the order flow in the Jun calls moving forward.

This is trade analysis, not a recommendation.

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