Thursday, February 16, 2012

E*TRADE Financial (ETFC) - Vol Seller Pounds Depressed Vol

ETFC is trading $9.15 down 0.2%, with IV30™ down 6.7% as of ~11:00am EST. The LIVEVOL® Pro Summary is below.


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E*TRADE Financial Corporation (E*TRADE) is a financial services company, which provides online brokerage and related products and services to the individual retail investors, under the brand E*TRADE Financial.

This is a vol note tied to some very interesting order flow. Let’s start with the flow. ETFC has traded nearly 50,000 contracts in the first hour and a half on total daily average volume of just 8,037. The largest trade has been a sale of 19,200 Mar 9 straddles @ $0.80 (so, 38,400 contracts). The Livevol® Stats and Day’s Biggest Trades snaps are included below.

That order flow has helped push the vol down today. The interesting part of the vol sale is the level that was sold. Let’s turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™- blue vs HV180™- pink).

Check out the vol portion. We can see that the implied is trading at (or near) six month lows and substantially below the historical measures. One point to note, the HV20™ is artificially elevated because of the stock gap off of earnings a couple of weeks ago. Still, the 52 wk range in IV30™ is [24.15%, 109.60%], so the current level is in the 18th percentile (annual). That means the sale was of particularly depressed vol and bets on even lower vol in the future. Very interesting.

Let’s turn to the Skew Tab.

We can see the vol drops from the back to the front monotonically. Or, said differently, the vol is higher further out. The Mar vol that was sold is considerably lower than the Apr expiry.

Let’s turn to the Options Tab.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. But, I can say that I’ve highlighted the line that was sold. It looks like ~39% vol. We can also see that Apr is priced to 44.18%. The vol sale is simply a bet that the depressed vol is "correct" and that it will move even lower.

This is trade analysis, not a recommendation.

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