Monday, September 19, 2011

Range Resources (RRC) - Stock, Vol and Skew Pop on Takeover Spec... Again

RRC is trading $65.85, up 3.8% with IV30™ up 16.0%. The LIVEVOL® Pro Summary is below.


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Range Resources Corporation is an independent natural gas and oil company. The Company is engaged in the exploration, development and acquisition of primarily natural gas and oil properties, mostly in the Appalachian and Southwestern regions of the United States.

This is an order flow note based on some M&A spec but the result has been both elevated overall vol and a substantial upside skew in the front month.

The company has traded over 21,500 contracts on total daily average option volume of just 3,686. Calls have traded on a 9.6:1 ratio to puts with the action in the Oct 70 and 75 calls where over 11,000 contracts have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Oct calls are mostly opening (compare OI to trade size). The trades look like substantially purchases, today. When looking down the entire option chain for RRC, I don't see any OI larger than 2,400, so both of the calls are showing very large interest.

The Skew Tab snap (below) illustrates the vols by strike by month.

The most notable phenomenon to me is the upside skew in Oct; and these aren't nickel bids. The Oct 85 calls are $0.40 x $0.75. Those calls are 30% OTM after today's 5% pop.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On the stock side, we can see the pop today. On the vol side, we can see that the implied is now higher than both the short-term and long-term historical realized vols. Specifically:

IV30™: 52.83
HV20: 40.73
HV180: 42.67

Possible Trades to Analyze
Upside skew sales, calendars or general vol sales seem reasonable given the vol comps presented above. Obviously, bets on a takeover are the predominant order flow now, so...

This is trade analysis, not a recommendation.

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