Monday, June 13, 2011

Harvest Natural Resources (HNR) - Oil Discovery and Vol

HNR is trading $12.82, up 22.2% with IV30™ up 5.5%. The LIVEVOL® Pro Summary is below.


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Harvest Natural Resources, Inc. (Harvest) is an international petroleum exploration and production company.

The company is moving on news of oil discovery Here's a quick snippet:
The oil was discovered in the Dussafu Ruche Marin-1 well in a block in which Harvest is the operator and holds a 67 percent interest, the company said in a statement.

The company had estimated the well held 90 million barrels, Eric Hagen, an analyst with Lazard Capital Markets Ltd. in New York, said in a note to investors this morning. The find could add $10 to Harvest’s share price, he said.
Source: Bloomberg, by Bradley Olson

As of right now the company has a market cap of ~$430 million. Today, the company has traded over 4,300 contracts on total daily average option volume of just 1,291. Calls have traded on a 15.3:1 ratio to puts on the news. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Jun 12.5 calls are most active in the front month, trading 1,884x on existing OI of 5,103. I actually think a good portion of those calls are sales (they look offered down).

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

We can see the front month has a positive slope (higher vol to the OTM calls), while the back is more normal (downward sloping). There's also a noticeable vol difference between the front two months -- or really, between the last week in Jun and the month of Jul. With the stock moving 22% today, it makes sense for that front month vol to be elevated.

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 pop today. On the vol side, we can see how IV30™ was elevated to HV20 and now the IV30™ has popped again. We'll see the HV20 movement tomorrow as all HV is calculated close-to-close.

Possible Trades to Analyze
This is an interesting one so close to expo. Selling the front to cover with the back is really selling a chunk of gamma -- which doesn't make it a bad trade, just one with risk.

At 80 vol in Jul, the ATM straddle is worth ~ $2.50 (ish). You could make an argument that sine the stock moved $2.31 in an hour that perhaps that's cheap?... Then again, the news may be out on this, in which case, that straddle is a sale?.. Tough to say.

1. Calendar Spread
a. Buy the Jun/Jul 12.5 put spread. This bets on the stock hanging around $12.50 by expo -- neither going much higher or much lower.

b. Buy the Jun/Jul 12.5 call spread. This is similar to the one above, but looks to a more bullish move after Jun expo.

This is trade analysis, not a recommendation.

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