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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