Tuesday, September 13, 2011

Interoil (IOC) - Calendar Vol Diff and Elevated Downside Put Vol to New Lows

IOC is trading $58.24, up 1.2% with IV30™ down 5.1%. The LIVEVOL™ Pro Summary is below.


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InterOil Corporation (InterOil) is an integrated energy company operating in Papua New Guinea and its surrounding Southwest Pacific region.

I found IOC using the month 1 to month 2 calendar spread custom scan. Normally a calendar with four days (or three and a half) to go to expo isn't the most interesting idea, but the vol in this bad boy is pretty cool.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry != 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.

The IOC Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Most notably, to me at least, is that the IV30™ and short-term historical (HV20) kind of trend with each other, while of late, both are substantially higher than the long-term realized (HV180) trend.

We can see:
IV30™: 76.42
HV20: 71.28
HV180: 49.28

In English, the stock is moving with much greater volatility of late than it has in the long-term and the implied vol is pacing that more volatile movement.

Let's turn to the Skew Tab to examine the calendar spread vol diff.

Not only are the ATM options priced to higher vol in Sep vs Oct by ~12 vol points, but the parabolic skew in Sep reflects substantially elevated risk in those OTM options in Sep compared to Oct. It's the doomsday scenario that is still priced in -- as the end of the weeks have proven to be quite... well... dooms-day-ish...

Let's look to the Options Tab (below).

The thing that caught my attention the most are the downside puts in Sep. With the 52 wk range in stock price being [$47.29, $81.98], those three and a half day Sep 47.5 puts are still priced at ~ $0.30. That's 140 vol... Whoa...

Possible Trades to Analyze
Calendar spreads ATM, OTM and diagonal are on the board as are naked vol sales in Sep or dare I say, naked vol purchases?...

This is trade analysis, not a recommendation.

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