Tuesday, July 26, 2011

Commercial Metals (CMC) - Order Flow Doubles Down, Calls Accumulated

CMC is trading $14.78, up 0.5% with IV30™ up 10.0%. The LIVEVOL® Pro Summary is below.


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Commercial Metals Company recycles, manufactures, fabricates and distributes steel and metal products and related materials and services through a network of locations throughout the United States and internationally.

This is an order flow note. I noticed the company yesterday on the call side, and today it has repeated, and then some. The company has traded over 15,000 contracts on total daily average option volume of just 778. Calls have traded on a 63.1:1 ratio to puts. The action is in the Sep 16 and Dec 16 calls where just under 14,000 calls have traded (combined). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. You can see the Sep 16 calls have an existing OI of 6,212.

That interest is long (in my opinion) and opened very recently. I've included the Level II OI chart from LVP, below. That first spike is 7-25-2011, meaning the trades took place on 7-22-2011. I believe the interest today is long as well so I expect the OI to increase substantially tomorrow -- we'll see.

The Dec 16 calls have essentially no OI relative to the volume today, so those are opening and I believe they're long. The Skew Tab snap (below) illustrates the vols by strike by month.

We can see the front month (red) is depressed to the back months. The company last released earnings in late Jun, so the next cycle is likely not in Aug or Sep. The second month does show a bend up to the OTM calls reflecting the order flow. Dec is actually quite "normal," yielding a nice vol diff between the second and third months to the upside.

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 risen of late, but more notably, the vol is climbing. Again, that's not earnings vol.

Possible Trades to Analyze
1. Calendar spread Sep and Dec:
The Sep/Dec 18 call spread sells ~6 vol points higher than it purchases and may in fact sell a non-earnings month (Sep) to own Dec. Another interesting point here is that the Dec options also own Oct (obviously) -- and that tends to be a volatile month as well.

2. Sell the upside:
Maybe this order flow is "much a do" -- so, selling that vol may be worth examining, especially if the vol continues to rise in those calls for another few days.

3. Opposite of #2
Maybe this flow is pointing to some takeover (or takeover rumors).  With the upside skew as it is, there are some opportunities to call spread intra-month and sell higher vol than is purchased.

This is trade analysis, not a recommendation.

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