Wednesday, November 23, 2011

ENERGY XXI (EXXI) - Elevated Implied, Elevated Front to Back

EXXI is trading $27.75 down 5.5% with IV30™ up 9.2%. The LIVEVOL® Pro Summary is below.


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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

This is a vol note -- both elevated overall implied and a month-to-month vol diff. Let's start with the Charts Tab (6 months), 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, check out that cataclysmic drop in early Aug -- icky... The stock fell from $32.66 on 8-1-2011 all the way down to as low as $21.04 on 8-9-2011. That's $11.62 or a 35.6% drop in eight calendar days.

On the vol side, we can see the implied is trading substantially above the two historical realized measures. Specifically:

IV30™: 70.28
HV20: 58.41
HV180: 58.58

It's worth noting that after the abrupt stock drop, EXXI IV30™ hit as high as 98.58. Let's turn to the Skew Tab (below).

We can see in this image that the Dec monthly vol lies above the Jan -- and the vol diff is more pronounced to the downside puts.

Finally, let's turn to the Options Tab for completeness.

Possible Trades to Analyze
There are calendar spreads, put spreads, call spreads, ratio spreads and calendar ratios on the board. Noting that the 52 wk range in EXXI is [$18.79, $37.20], one can examine the downside. A Dec 22/21 1x2 put spread receives a credit and doesn't start to lose money until EXXI cracks below $20 (on expo).

Alternatively, a Dec/Jan 22/22.5 put spread selling the front twice keeps some deltas in the diagonal and pays a small premium. This one gets long the vega in the back which is depressed to the front.

One-to-one calendars and plain vanilla c/s and p/s seem reasonable on certain strikes as well.

Another note, last time I wrote about EXXI was 6-20-2011, noting elevated vol. Well... By 8-9-2011, that ~52 vol didn't look expensive. You can read that June post here:
Energy XXI (EXXI) - Elevated Vol... Again...

This is trade analysis, not a recommendation.

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