Wednesday, August 31, 2011

Monster Worldwide (MWW) - Time Spread, Earnings Vol Scalp

MWW is trading $9.44, down 4.7% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.


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Monster Worldwide, Inc. (Monster) provides global online employment solution.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. With earnings due out after the Oct expo, this is an interesting one to look at it.

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.

I've included the front three months. We can see how elevated Sep is to Oct and Dec. The last two years the Oct earnings cycle for MWW have been 10-28-2010 and 10-29-2009. If it follows the same pattern, the next earnings cycle will be after the Oct options -- so in Dec (and Nov when that month is quoted). Looking to the 9 strike (which is ATM), we can see that both Sep and Oct are elevated to Dec. More on that later...

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).

We can see a nice recovery of late in stock price -- sort of emblematic of the entire market's recovery.

On the vol side, we can see a dipping IV30™, which is now right on top of the long-term realized historical vol (HV180). At the same time, the stock has been moving at substantially higher short-term realized vol. Specifically:

IV30™: 65.05
HV20: 116.28
HV180: 64.80

So the stock has moved at approximately twice the implied over the last 20 trading days.

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

Potential Trades to Analyze
All sorts of calendar spreads are reasonable positions to examine. One-sided (calls or puts) and two-sided. An interesting approach could be a Sep/Dec calendar, and if that works, turning that into an Oct/Dec calendar. This position allows two sales of elevated vol versus a "cheaper" purchase of vol that owns earnings. Diagonals can make this trade more delta focused and less gamma risky (selling OTM vs owning ATM).

This is trade analysis, not a recommendation.

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