Wednesday, June 8, 2011

Office Depot (ODP) - Vol Explodes, Calls Trade, Stock Near New Low

ODP is trading $3.57, down small with IV30™ popping up 48.6%. The LIVEVOL® Pro Summary is below.


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Office Depot, Inc. (Office Depot) is a global supplier of office products and services. The Company operates in three business segments: North American Retail Division, North American Business Solutions Division and International Division.

The company caught my eye because of the vol pop today. While it's substantially call buying, there's a little more going on here than that...

The company has traded over 46,000 contracts on total daily average option volume of just 2,699. Calls have traded on a 67.1 ratio to puts with the action in the Jul 3.5 and 4.5 calls as well as the Jan'12 5 calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Jul 3.5 calls are mostly opening (compare OI to trade size), and I believe those are long. The Jul 4.5 calls also look long, but OI is over 14,500 (so greater than trade size). My best guess is that the Jul 4.5 call OI is long as well, meaning that OI should pop substantially as of tomorrow. Finally, the Jan'12 5 calls have traded over 7,500x on OI of 15,514. The calls are long today, and that existing interest also looks long. So basically, call buyers are losing their minds... right? Well, how about this...

The Jan'12 5 calls were bot for $0.29 against $3.47 stock. I looked up the equity trades near the trade time in LVP and see the trade was tied to 400,000 shares (i.e. GTE 50 delta). In English, that "call buyer" was really more like a synthetic put buyer, or at the very least, a straddle buyer. That ain't bullish...

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

We can see the upside vol in both the front two months is rising to the OTM calls. Oct also has that shape, though it's much less pronounced and vol does fall off after the 4.5 strike.

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 has been going straight down of late. This was a $6 stock in Feb and ~ $4.80 in mid May. On the vol side, IV30™ has risen sharply today, up nearly 50%, and is now substantially higher than the HV20 and HV180.

Possible Trades to Analyze
With vol high and stock low, this is a natural time to examine a buy-write. Hypothetically that's buying "low" stock and selling "high" vol. The risk of course is that this thing goes to zero (or whatever). The bets are rolling in and who knows where this thing ends up. The 52 wk. low is $3.36 and we're not too far from that...

This is trade analysis, not a recommendation.

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