Monday, July 25, 2011

Solutia (SOA) - Puts Trade into Earnings; Vol Pattern Emerges

SOA is trading $21.74, down 3.8 with IV30™ popping 11.9%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Solutia Inc. is a global manufacturer of performance materials and specialty chemicals used in a range of consumer and industrial applications, including interlayers and aftermarket film for automotive and architectural glass; chemicals that promote safety and durability in tires, and encapsulants, coatings and specialty chemicals used in a variety of electronic, industrial and energy solutions.

The company has earnings due out today, AMC. Today nearly 5,000 option contracts have traded in the first hour and a half on total daily average option volume of just 781. Puts have traded on a 12:1 ratio to calls with the action in the Aug 20 puts where over 4,000 contracts have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls and puts have traded more than the existing OI, so some of this flow is opening. The orders look like substantially purchases, though that existing OI feels short -- so there may be some closing here too.

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

The skew across all months has a consistently "normal" shape. The front is elevated to the back due to earnings (today). Unfortunately, I don't see any kinks in the skew that would provide an interesting skew trade.

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).

The stock has bounced around the current levels for a while (i.e. the full 6 months, at least). On the vol side we can see this is a 6 month high in IV30™, though nowhere near an annual high. The 52 wk range in IV30™ is [34.99, 66.37].

Possible Trades to Analyze
In terms of earnings bets, I've included the earnings stats over the last quarters, below:

We can see that for the last six quarters selling the ATM straddle one day before earnings and purchasing it back the day after has resulted in a winning trade six times in a row. Prior to that, there were two quarters where that trade lost, but the end result was ~11% loss.

Obviously eight quarters is just a small sample of the population of results, but still cool to look it. For the record, I'm not advocating selling a naked earnings straddle...

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment