Tuesday, June 14, 2011

Mercadolibre (MELI) - Calendar Spread, Elevated Vol and Stock Movement

MELI is trading $79.74, up 3.1% with IV30™ down 4.6% as of ~10:10am EST. The LIVEVOL® Pro Summary is below.


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MercadoLibre, Inc. hosts an online commerce platform in Latin America located at www.mercadolibre.com which is focused on enabling e-commerce and its related services.

I wrote about this one for TheStreet.com (OptionsProfits) so no specific trade analysis, here. The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Noting that we’re very close to expiration, let’s look to the Skew Tab (below).

We can see the month-to-month vol difference – again, this isn’t necessarily unusual given expo is four trading days away.

Now we can turn to the Charts Tab (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 IV30™ is slightly elevated to the historical measures – meaning that Jul vol is slightly elevated to the historical measures as Jun is essentially excluded from IV30™ on expiration week. We can also see the stock drop on 6-6-2011 – there were concerns over elections in Peru. On that same day Piper Jaffray sent out a note that MELI’s growth prospects in Latin America remain unchanged and called the dip a buying opportunity.

Let’s turn to the Options Tab.

The calendar spread kinda seems pricey sine it would mean owning vega in July, which is elevated per the chart above. The front month options are pretty juicy for those interested in a risky bet. Then again, the stock has moved more than $2.50 today alone -- so, ya know... Maybe not juicy enough?

This is trade analysis, not a recommendation.

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