Monday, June 13, 2011

Waste Management (WM) - Elevated Vol & Downside Vol Diff

WM is trading $36.49, down small with IV30™ up 0.5%. The LIVEVOL® Pro Summary is below.


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Waste Management, Inc. is a holding company and all operations are conducted by its subsidiaries. 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 >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

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.

Let's look to the Skew Tab (below) to check out the line-by-line and month-to-month vols.

We can see the front month vol ATM shows a vol diff of ~6 points. Going down the skew, the Jun/Jul 34 skew difference opens to ~22 points. Nice...

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).

IV30™ is suite elevated -- has risen of late as the stock has gone down.

IV30™: 26.55
HV20: 12.91
HV180: 11.32

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
A few ways to look at this.

1. Calendar spread the downside:
Jun/Jul calendar put spreads open up to over 20 vol point differences. For the negative delta bet taker, a diagonal accumulates an even greater vol difference while owning the downside.

2. Straight vol sale:
Given the elevated IV30™ to the historical measures, a vol sale of some sort can be examined.

3. The opposite:
It's contrarian, but... The Jul ATM straddle is priced at ~$2.40. Maybe that's too cheap?

This is trade analysis, not a recommendation.

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1 comment:

  1. nice Post, Integrated waste management using LCA (life cycle analysis) attempts to offer the most benign options for waste management. For mixed MSW (Municipal Solid Waste) a number of broad studies have indicated that waste administration, then source separation and collection followed by reuse and recycling of the non-organic fraction and energy and compost/fertilizer production of the organic waste fraction via anaerobic digestion to be the favoured path.