Wednesday, May 25, 2011

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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