Monday, August 29, 2011

IMAX (IMAX) - Calendar Spread, Rising Vol, Implied v. Historical Comps

IMAX is trading $17.76, up 9.9% with IV30™ up 8.5%. The LIVEVOL® Pro Summary is below.


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IMAX Corporation together with its wholly owned subsidiaries, is an entertainment technology companies, specializing in motion picture technologies and presentations.

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 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 start with the Skew Tab (below).

We can see the substantially elevated vol in Sep to Oct. Within Sep, there is an interesting upside skew going from the 20 strike up through the 22 strike. There's also an interesting spike to the Sep 19 calls while there's a small dip down to the Oct 19 calls, making a 23 vol point diff between the two months on that line.

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).

The stock dropped from $38 on 6-1-2011 to $13.70 on 8-22-2011, or a 64% drop in less than three months. An earnings report and stock drop off of it is included in that price decline. Since 8-22-2011, the stock has recovered a bit to now over $17.50.

On the vol side, we can see the IV30™ climbing from 41.05 (on 6-1-2011) to now just under 83. In English, as the stock has dipped 60% (ish), the implied vol has doubled. Interestingly, the short-term historical vol (HV20) is actually above the implied. The long-term historical vol (HV180) is still in the upper 50's. Specifically:

IV30™: 82.98
HV20: 99.17
HV180: 57.92

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

Potential Trades to Analyze
Vol sales and vol purchases seem reasonable. That is, The implied is trading below the HV20, so a salient argument could be made to purchase vol -- the stock has moved ~10% today. Then again, given the long-term HV, a vol sale also seems like a reasonable trade. Let's focus on some calendar spreads -- a vol sale and purchase.

1. ATM Calendar
The trade with the most short gamma risk is the ATM calendar (duh). That 17.5 Sep straddle is priced at ~94 vol. The ATM Oct straddle (18 strike) is priced at ~73 vol.

2. OTM Calendar Spreads
a. Calls: The 19 strike call spread shows a 23 vol point spread.
The 20 strike shows a 21 vol point spread.
b. Puts: The 16 strike shows a 23 vol point spread.
The 15 strike shows 20 point vol spread.
One or two-sided seem reasonable positions to examine.

3. Diagonal Calendar Spreads
For a calendar that takes on a delta, selling the higher (lower) strike with the calls (puts) gets a vol diff and some deltas.

This is trade analysis, not a recommendation.

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