Wednesday, May 11, 2011

OfficeMax (OMX) - Skew Spreads Open on Order Flow

OMX is trading $9.38, up small with IV30™ up 1.6%. The LIVEVOL® Pro Summary is below.


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Officemax Incorporated (OfficeMax) provides office supplies and paper, print and document services, technology products and solutions, and office furniture to large, medium and small businesses, government offices and consumers.

This one has some nice skew opportunities as well -- both inter- and intra-month. The company has traded just under 8,500 contracts on total daily average option volume of just 2,697. All but 279 contracts have been calls yielding a 29.5:1 call:put ratio. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the action is actually in the Aug 10 and 12 calls where nearly 7,000 contracts have traded. May vol is up 2.9 points, Jun 0.5 points and Aug is up 1.8 points.

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

Here's where it gets interesting. The upside skew in Jun is bid -- both the Jun 11 and 12 strikes show increasing vol relative to the ATM. While the Aug ATM vol is above the Jun ATM, the Jun 12 calls are still priced higher than the Aug 12 calls. The next earnings date for OMX is due out in early August (that's just a projection). So, hypothetically, one could own earnings upside for less vol than non-earnings upside... 'n stuff...

Last earnings cycle OMX gapped down from $12.49 to $10.00 (or ~19.9%). The earnings cycle before last, OMX gapped down from $17.06 to $15.35 (or ~10%). So, in English, the stock can move pretty abruptly on earnings news (granted it's been down the last two times).

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 stock gaps on earnings. The HV20 is artificially elevated because of the most recent earnings release. IV30™ is depressed to both measures of historical vol on the chart.

Possible Trades to Analyze
1. Inter-month Skew Trades:
The Jun/Aug 12 call spread sells ~61.5 vol (@ $0.10) and purchases ~50.50 vol. This trade own earnings vol for less than non-earnings vol -- but it is OTM upside. Neither the ATM or OTM downside allow this kind of vol scalp -- so mind the delta.

2. Intra-month Skew Trades:
The Jun 10/11 or 11/12 call spreads allow to purchase lower vol than they sell in a call spread (which is reverse skew). These also carry a delta, though. Not to be obnoxious, and I'm NOT recommending any trade here, but please be mindful of selling the Jun 11 call @ $0.10 if you can instead sell the Jun 12 call @ $0.10, right?...

This is trade analysis, not a recommendation.

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