Tuesday, May 10, 2011

Titanium (TIE) - Skew Bends on Takeover Rumors and Order Flow

TIE is trading $20.10, up 3.1% with IV30™ up 0.9% on takeover rumors. The LIVEVOL® Pro Summary is below.


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Titanium Metals Corporation (TIMET) is a producer of titanium melted and mill products. The Company has titanium production facilities in the United States and Europe.

I posted this one on TheStreet.com, so no specific trade analysis, but this is a great opportunity to examine skew as it reacts to a takeover rumor.

On the rumor, the company has traded over 18,500 contracts in the first hour (ish) on total daily average option volume of just 3,996. Calls have traded on a 30.8:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. More than 6,500 May 20 calls have traded and more than 5,000 Jun 21 calls have traded.

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

Two things that we can see. First, the upside skew in May is bid to the 21 and 22 lines. Second, the Jun OTM calls aren't reacting. In English, a vol diff has opened up between the May/Jun 21 calls and the May 20/21 (and 22) calls. There's liquidity in those Jun calls.

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 the stock dipped slightly off of earnings news on 5-5-2011 and has risen today. On the vol side we can see the IV30™ is elevated to both the HV20 (short-term realized vol) and the HV180 (long-term realized vol).

This is trade analysis, not a recommendation.

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