Tuesday, June 21, 2011

Take-Two Interactive (TTWO) - Elevated Vol

TTWO is trading $14.85, up 1.5% with IV30™ down 2.5%. The LIVEVOL® Pro Summary is below.


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Take-Two Interactive Software, Inc. is a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. I found this stock using a real-time custom scan. This one hunts for high vols.

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 TTWO 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™: 42.31
HV20: 28.50
HV180: 32.16

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. On 5-20-2011 (so, a month ago), IV30™ got as high as 56.43 into earnings, then has dipped since though it's still above the historical measures.

Let's turn to the Skew Tab.

The front month has a parabolic skew though the ATM vol is below the second month.

Let's look to the Options Tab (below).

We can see vol is ~3 points higher than Jul.

Possible Trades to Analyze
TTWO is a takeover candidate (or has been in the past), making ratio spreads to the upside a touch riskier than normal.

1. ATM Vol Sale
a. The Jul 14/15 strangle is priced at ~41 vol and requires TTWO to stay in ~($13.15, $15.85). This is naked both the upside and downside.

b. Trade (a) covered with the 13/16 strangle collects ~$0.45 and yields a MaxGain:MaxLoss of just under 1.

2. Downside ratios
The Jul 13/15 put spread selling two 13 puts costs ~$0.45 with $0.15 in parity. It is naked downside risk below ~$11.50(ish) but only requires TTWO go down to $14.55 to turn profitable at expo.

This is trade analysis, not a recommendation.

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