Friday, June 3, 2011

AK Steel (AKS ) - Skew Diff Gaps on Rumors

AKS is trading $15.05, up 1.8% with IV30™ popping up 12.1%. The LIVEVOL® Pro Summary is below.


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AK Steel Holding Corporation (AK Holding) is a producer of flat-rolled carbon, stainless and electrical steels and tubular products through its wholly owned subsidiary, AK Steel Corporation (AK Steel).

Here the news from TheFlyonTheWall:
10:32 EDT Rumor: AK Steel moves up on speculation it canceled a sell-side conference

The company has traded over 51,000 contracts on total daily average option volume of just 12,405. Calls have traded on a 5.3:1 ratio to puts with the Jun 16 calls the most active (nearly 18,500 contracts have traded). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls have traded on large OI. I believe that interest is long, so IMO, the order flow today is a double down.

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

This is cool. Check out how the upside skew in Jun is super bid, especially as we get to the 17 and 18 strikes.

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 bounces around a lot. On the vol side we can see the IV30™ is popping today -- now elevated to both the short-term historical vol (HV20) and the long-term (HV180).

Possible Trades to Analyze
1. Intra-month skew trade:
The Jun 16/17 call spread sells about 9 vol points more than it purchases and copies order flow. For more risk and more potential gain, the Jun 16/18 call spread is also an interesting one to examine.

2. Inter-month skew trade:
That Jun/Jul call spread sells about 14 vol points more than it purchases. The Jun/Jul 18 call spread sells about 18 vol points higher than it purchases. Diagonals are also interesting -- a Jun/Jul 17/16 c/s scalps about 15 vol points and owns deltas. If that trade works out it can be extended Jun expo by selling another OTM call in Jul.

3. None of that...
Just another rumor that comes to nothing and burns the vega buyers?... Maybe...

This is trade analysis, not a recommendation.

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FULL DISCLOSURE: I'm long calls in Jul and short calls in Jun, small.

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