Tuesday, August 23, 2011

Silver Metals (SVM) - Elevated Vol, Parabolic Skew and Double Systematic Risk

SVM is trading $8.35, down 4.1% with IV30™ up 3.2%. The LIVEVOL® Pro Summary is below.


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Silvercorp Metals Inc. (Silvercorp) is engaged in the acquisition, exploration, development and mining of high-grade silver-related mineral properties in China and Canada. Silvercorp is the primary silver producer in China through the operation of the four silver-lead-zinc mines at the Ying Mining Camp in the Henan Province of China.

I found this stock using the real-time custom scan that searches for high vols.

Custom Scan Details

Stock Price GTE $7 and LTE $70

IV30™ - HV20 LTE 10

HV180 - IV30™ LTE -8

Average Option Volume GTE 1,200

Industry isNot Bio-tech

Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). 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 IV30™ simply because earnings are approaching.

Let’s start with SVM 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:

IV30™: 99.24

HV20: 76.21

HV180: 59.92

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. The HV10 is 58.38, so the stock has actually moved with less volatility in the very recent term. On the stock side, we can see the price drop off of earnings from $10.40 to $8.95 or ~14%.

Let’s turn to the Skew Tab.

The front month shows a parabolic shape while Oct is sort of “normal.” That skew shape difference opens up some calendar spread opportunities in the OTM calls and puts between Sep and Oct.

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

Possible Trades to Analyze

I wrote about this one for TheStreet.com (Options Profits), so no specific trade analysis. I will say that there are a bunch of interesting trades to examine here.

The risk in this company does feel two-fold though, from a purely systematic point of view. Is it possible this stock dips (and vol rises) if the US market free falls? Is it also possible this stock dips and vol rises if there's some more accounting scandals with other Chinese companies? If you believe both are yes, that could mean double the risk (or whatever) -- and that means vol should be elevated.

This is trade analysis, not a recommendation.

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