Tuesday, October 25, 2011

SLM - Dipping Stock, Rising Vol, Open Skew in Calendar to OTM Puts

SLM is trading $12.58, down 11.3% with IV30™ up 30.4%. The LIVEVOL® Pro Summary is below.


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SLM Corporation, known as Sallie Mae, is a holding company that operates through a number of subsidiaries. The Company’s primary business is to originate, service and collect loans made to students and/or their parents to finance the cost of their education.

This is an order flow note and a note on the vol. The company has traded over 23,000 contracts on total daily average option volume of just 5,619. Puts have traded on a 3.7:1 ratio to calls with the action in the Nov 12 and 13 puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the puts are trading against large OI so whether or not the trades are opening is ambiguous (compare OI to trade size). The Nov 12 puts look like purchases, but the Nov 13 puts actually look like sales, maybe. But the thing that really caught my attention is in the puts spread across months.

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

Check out that vol diff between the 9 and 10 strikes in Nov versus Dec. We're looking at 20-30 vol point diffs.

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).

I've highlighted the stock drop today along with the IV30™ spike. As of today, the implied is now trading over the two historical measures.

Possible Trades to Analyze
It may be worth analyzing the Nov/Dec 10 put spread. That's selling 95 vol and purchasing 74 vol -- or in English, paying ~$0.18 for that put spread. Doing diagonals (either way) using the 9 strike as well also may be worth examining. You know.. or not...

FULL DISCLOSURE:  I own that Nov/ Dec put spread.
This is trade analysis, not a recommendation.

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