Wednesday, August 10, 2011

HSBC Holdings (HBC) - Put Side Calendar and Elevated Vol

HBC is trading $42.03, down 6.4% with IV30™ up 35.0%. The LIVEVOL® Pro Summary is below.


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HSBC Holdings plc provides various banking and financial products and services. Its Personal Financial Services group offers current and savings accounts, mortgages and personal loans, credit and debit cards, and payment services; wealth management services comprising insurance and investment products, and financial planning services; and consumer finance.

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 GTE $5

Sigma1 - Sigma2 GTE 8

Average Option Volume GTE 1,000

Industry isNot Bio-tech

Days After Earnings GTE 5 LTE 70

Sigma1, Sigma2 GTE 1

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.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

We can see how the front month is elevated to the back but mostly due to the downside skew. Given the market’s collapse and the industry, that’s not surprising. But the size of the vol diff is large enough to take note. As an example, the 33 strike vol diff from Aug to Sep is ~40 vol points using $0.36 as fair value for the Aug puts (mid-market is ~ $0.38).

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).

What I'm interested in here is the vol portion. Check out how high IV30™ is relative to the short-term historical vol (HV20) and the long-term historical vol (HV180). Specifically:

IV30™: 47.54

HV20: 39.86

HV180: 22.87

So the implied is elevated to the historical. Note that Aug ATM vol is priced at ~ 55 and the downside puts, well… substantially higher in Aug (and Sep). The stock has also collapsed with the market, so there is downside risk and that risk is reflected in those near-term puts (i.e. the vol).

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

I wrote abut this one for (OptionsProfits) so no specific trade analysis here. But, the vol diff in the puts is interesting and potentially worth some analysis.

This is trade analysis, not a recommendation.

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