Wednesday, October 19, 2011

New Gold (NGD) - Vol Explodes on Call Trading in Nov

NGD is trading $10.95, down 3.1% with IV30™ jumping up 42.6%. The LIVEVOL® Pro Summary is below.


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New Gold Inc. (New Gold) is an intermediate gold producer with a portfolio of global assets in the United States, Mexico, Australia, Canada and Chile.

This is an order flow note, and a pretty simple one at that. Call buying -- and lots of it on one line. NGD has traded 62,130 contracts on total daily average option volume of just 2,635. Calls have traded on an 8.1:1 ratio to puts with the Nov 11 calls trading over 48,000x. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). Given the vol movement (i.e. up), these feel like purchases. Earnings are due out in the Nov cycle, so this may be an earnings bet. The stock volume is right at the daily average with an hour and a half to go, so higher than usual, but not crazy higher considering ~50,000 50 delta calls have traded.

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

I'm surprised that the vol in the 11 strike in all months (and Nov in particular) isn't elevated and gives me pause as to whether these are two sided (buyers and sellers). We can look to the OI tomorrow and see if it's gigantic (near the trade volume). The elevated Nov vol relative to Jan'12 is due to earnings (at least in part).

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).

If we rewind a day we would have seen an implied trading squarely in between the short-term and long-term historical vols with a calm(ish) stock chart. As of today, though, we can see the IV30™ explosion. The 52 wk range in IV30™ prior to today was [42.76, 72.19]. Obviously with the implied over 80, we're at a new annual high. In fact, the last time IV30™ was this high was late Jan of 2010 when this was a $3.64 stock.

Possible Trades to Analyze
It hasn't gone unnoticed that the vol is up 50% (or whatever), but the stock is just kinda sitting there. The Nov 11 straddle is worth ~$2.05 and the 52 wk range in stock price for NGD is [$6.41, $14.15] with that high hit in early Sep. In English, this stock can move, the vol reflects the highest risk in the last two years and it's already ~30% off of an annual high reached 2 months ago. With earnings coming up, is $2 fair value? I dunno... Seems like it's not insane expensive... No?... Then again, buying earnings premium can be icky.

This is trade analysis, not a recommendation.

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