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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