Thursday, July 14, 2011

Sara Lee (SLE) - Oct Bets Roll in Ahead of Earnings

SLE is trading $19.55, up 0.6% with IV30™ up 0.4%. The LIVEVOL® Pro Summary is below.


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Sara Lee Corporation (Sara Lee) is a global manufacturer and marketer of brand-name products for consumers globally focused primarily on the meats, bakery, beverage and household products categories.

This is an order flow note brought to my attention by Mike Bristow of the Vtrader Group. The company has traded over 88,000 contracts on total daily average option volume of just 7,296. Calls have traded on a 2.3:1 ratio to puts. The action has been what looks like closing in Jul and what is definitely opening in Oct, but not a roll. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Jul calls are likely closing, but the Oct risky is mostly opening (compare OI to trade size). Here's the color I have:
SLE Cust:
Sold 25k oct 19 calls @ 1.27
Bot 10k jul 19 calls paid .675
Bot 25k oct 16 puts paid .20
Bot 7k jul 18 calls paid 1.65
Bot 7k jul 18 calls paid 1.70
Sold 7.5k jan 20 calls @t 1.125

So, in English, Oct put buyer and call seller, Jan call seller.

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

I've highlighted the Oct risky strikes in the chart. The shape of the skew is actually quite normal looking. The elevated vol in Oct makes sense given the direction of the bet. Though the Oct options are quite sometime away from expiration, I would have expected a slightly more pronounced move in the skew to raise the downside vol and lower 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 been in a relatively tight range over the last few months. On the vol side (bottom), we can see the IV30™ has popped past the long term and short term realized. Note that earnings are projected for the Aug options cycle.

This is trade analysis, not a recommendation.

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