Thursday, June 16, 2011

GameStop (GME) - Elevated Vol, Parabolic Skew

GME is trading $26.28, up 0.6% with IV30™ down 2.1% as of ~ 10:35am EST. The LIVEVOL® Pro Summary is below.


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GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise.

I wrote about this one for, so no specific trade analysis here, but this is an elevated vol note. I found this stock using the real-time custom scan that filters for high implied vols relative to historical.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

The GME 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).

We can see:
IV30™: 34.78
HV20: 19.76
HV180: 25.76

So IV30™ is elevated to the historical measures. We can also see that IV30™ tends to trade above the historical vols in this stock – the trend has been persistent for the last five months (ish). The HV20 is particularly low of late given the recent “non-movement” of GME stock (also highlighted in the chart above).

Let’s look to the Skew Tab to see if there are any interesting skew irregularities.

The Jul vol is actually quite pretty – no kinks. We can also see that the OTM calls do increase in vol creating a parabolic skew – the option markets reflect upside risk similar to the downside (as opposed the normal shape of a downward sloping curve).

Finally, let’s turn to the Options Tab for completeness.

This is trade analysis, not a recommendation.

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