Wednesday, May 4, 2011

Gap Inc (GPS) - Vol Explodes on Takeover Chatter; Skew Bends

GPS is trading $23.35, up 1.8% with IV30™ up 25.5%. The LIVEVOL® Pro Summary is below.


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The Gap, Inc. is a global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands.

This is a takeover chatter stock, today. And oh my, how the market is reacting. I posted a note on this one for, so no specific trade analysis in this blog.

The company has traded over 42,000 contracts on total daily average option volume of just 5,668. Calls have traded nearly 40,000x yileding an 11.8:1 call:put ratio. The May 25 and Jun 25 calls have traded more than 10,000x each -- May look like purchases, Jun is a bit less clear to me. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls in both May and Jun are mostly opening if they're one-sided (compare OI to trade size). When looking down the first three months of the GPS option chain, I don't see any OI larger than 7,000, so both lines are showing very large volume.

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

This is a great skew -- the upside in May is bid all the way to the 25 strike (where the volume is). But, Jun and Sep don't show any upside skew. If anything, Jun and Sep look quite normal.

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).

Vol is exploding, though it is interesting to note that GPS IV30™ has been above 55 in the last 52 weeks. The stock is moving up on the takeover chatter as well.

This is trade analysis, not a recommendation.

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