Friday, November 18, 2011

McMoRan (MMR) - Elevated Vol With Rising Stock; Vertical Skew

MMR is trading $14.66, up 1.0% with IV30™ down 6.1%. The LIVEVOL® Pro Summary is included below.


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McMoRan Exploration Co. (McMoRan) is engaged in the exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area of the United States.

This is another one I found using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol. This one has a twist -- elevated vol on an increasing stock.

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 news that has driven the stock up recently is included below in a company press release:

McMoRan Exploration Co. (NYSE: MMR - News) announced today that its Lafitte ultra-deep prospect, which is located on Eugene Island Block 223 in approximately 140 feet of water, has encountered additional hydrocarbons.


These results enhance the potential of McMoRan’s other acreage in the Lafitte strategic area, including McMoRan’s Barataria and Captain Blood ultra-deep prospects.
Source: McMoRan Exploration Co. Announces Additional Hydrocarbons in the Lafitte Ultra-Deep Exploration Well

The MMR 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 stock popped in the news, up ~$1.25 from $14.03 to $15.25. What's interesting is that since the nature of the news is both good and also ambiguous in its finality, the stock and vol rose (and continue to rise). Right now the implied is elevated to both the short- and long-term historical realized vols.

We can see:
IV30™: 95.87
HV20: 68.25
HV180: 61.65

Let's turn to the Skew Tab, below.

We can see a steep downside vol slope -- almost vertical. In English, the downside puts are priced extraordinarily expensive relative to each other as we move down the chain in both Dec and Jan'12. The downside puts maintain small bids which manifests into high vols.

Let's look to the Options Tab (below), for completeness.

Possible Trades to Analyze
The 52 wk range in MMR is [$8.25, $19.26], so it can move. For a stock that has moved this much of late, selling the OTM while owning the meat may be an interesting way to examine this vol. Alternatively, selling the meat to own the OTM options on a ratio (owning > sell) bets that the stock will either stand still, or move "a lot."

This is trade analysis, not a recommendation.

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