Friday, September 9, 2011

Travelzoo (TZOO) - Elevated Implied, Dipping Historical

TZOO is trading $33.40, up 3.5% with IV30™ up 1.3%. The LIVEVOL® Pro Summary is included below.


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Travelzoo Inc. (Travelzoo) is a global Internet media company. The Company informs over 22 million subscribers worldwide, as well as millions of Website users, about the best travel, entertainment and local deals available from thousands of companies.

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.

The TZOO 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).

We can see the massive stock drop off of earnings in late Jul; the stock went from $85.71 to $56.00 in a day (~34%). As of this writing, the stock is trading $33.40 -- that's a full 61% off of the pre-earnings value and 40% off of the immediate drop. But... check out the stock price since mid Aug.

On the vol side, The HV20 was as high as 182 on the stock drops, today that number is down to 83.90. In English, the realized short-term vol of the stock has come down significantly of late as the stock has finally started moving closer to its long-term trend (HV180). The IV30™, however, has been rising of late, now to just under 135 which is an annual high. Specifically:

IV30™: 134.61
HV20: 83.90
HV180: 95.80

Let's turn to the Skew Tab, below.

The ATM vol in Sep (121) is below the ATM in Oct (133) and Dec (133). Earnings may be due out right on Oct expo week. The OTM options are priced to higher vol in Sep, which is normal this close to expo.

Let's finish with the Options Tab (below).

Possible Trades to Analyze
1. Front vol sales or calendar spreads
Doing the one-sided or two-sided calendar is a reasonable position to examine. Selling the Sep 30/35 strangle collects ~$2.50 which gives a positive PnL if TZOO stock is in ($27.50, $37.50). Buying the Oct calendar covers that strangle and then owns the earnings vol in a stock that just moved $34 last earnings cycle.

This is trade analysis, not a recommendation.

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