Tuesday, June 26, 2012

Energy XXI (EXXI) - Vol Pops as Near-term Call Buyers Pile In

--- OVERVIEW ---
EXXI is trading $27.12, up 2.5% with IV30™ up 9.3%. 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. The Company is engaged in the acquisition, exploration, development and operation of oil and natural gas properties onshore in Louisiana and Texas and offshore in the Gulf of Mexico.

This is a vol and order flow note in a stock that has been dipping hard of late. Let's start with order flow and then look to some vol charts.

--- ANALYSIS ---
The company has traded 9,555 contracts on total daily average option volume of just 1,626. Calls have traded on an 8.4:1 ratio to puts, with the action in the Jul 29 calls (over 8,200 have traded -- substantially purchases as I see it). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Jul 29 calls are mostly opening (compare OI to trade size). When looking down the entire option chain for EXXI, I don't see any OI larger than 2,064, so the size today is very large for EXXI.

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

We can see that the skew has a normal shape and that the two front months sort of lie on top of each other. It's actually frightening how similar the skew shapes are for these two expiries. I've circled the Jul 29 strike -- there is a slight elevation in vol to those calls from the buying pressure.

Finally, the Charts Tab (six months) is 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, we can see the abrupt drop from $38 to now ~$27 in just two months. The drop started with an earnings release, and has continued for several weeks. The 52 wk range in stock price is [$18.75, $39.56].

On the vol side, we can see that the short-term historical realized vol is far outpacing the implied, even with the pop today in IV30™. The 52 wk range in IV30™ is [34.86%, 98.58%], putting the current level in the 26th percentile. So, in English, even as the stock has headed down, the vol is still low relative its annual history. The order flow today gets long vol. I only see ~850,000 stock shares traded today against an average volume of ~1.2 million -- so the calls seem like naked purchases.

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This is trade analysis, not a recommendation.

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