Monday, June 25, 2012

Jacobs Engineering (JEC) - Puts Trading, Vol Exploding; Largest US Refinery Shut Down

--- OVERVIEW ---
JEC is trading $33.80, down 4.5% with IV30™ up 30.8%. The LIVEVOL® Pro Summary is below.


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Jacobs Engineering Group Inc. is a technical professional services firm in the United States. It provides a range of technical, professional, and construction services to industrial, commercial, and governmental clients globally. The Company provides four categories of services: project services; process, scientific and systems consulting services; construction services, and operations and maintenance services.

This is a vol and order flow note with some interesting news. Let's start with the order flow and news and then get into the vol move.

--- ANALYSIS ---
JEC has traded 8,101 contracts on total daily average option volume of just 769 in the first two hours of trading. Of that 8,101, just 153 have been calls, yielding a 52:1 put:call ratio. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the action is in the Jul 33 puts, where over 7,000 contracts have traded on existing OI of just 141 -- this indicates opening orders. From what I see, the order flow is substantially purchases. When looking down the entire option chain for JEC, I don't see any OI larger than 2,305, so the action today is very large for JEC.

The only news I could find surrounds this contaminated US refinery story that I posted on Twitter (@Livevol_Pro). I've included a few snippets and am half-way making the assumption that JEC was involved in the construction in some way.

(Reuters) - In the end, all it took was a small chemical spill -- perhaps less than a barrelful -- to bring down the newest, mightiest oil refinery in the United States.

Three weeks ago, while workers repaired a minor leak at the Port Arthur, Texas plant owned by Motiva Enterprises, a few gallons a day of so-called "caustic" was inadvertently seeping into the newly built crude distillation unit (CDU), the 30-story-high network of interconnected cylinders and latticed pipelines at the heart of the refining process.

While harmless when mixed with crude, the undiluted caustic vaporized into an invisible but devastating agent of corrosion as the chamber heated up to 700 degrees Fahrenheit ( 370 Celsius); [...]

Now, just weeks after they commissioned the biggest U.S. refinery project in a decade, two of the world's biggest oil titans -- Royal Dutch Shell and Saudi Aramco, which own Motiva -- are rushing to repair the potentially billion-dollar glitch that has added an embarrassing and costly coda to a landmark $10 billion expansion.

After a five-year effort to double the plant's capacity, making it the largest in the country, they must now reassemble many of the same people and parts for a blitzkrieg fix that may exceed the original $300 million cost of the unit: corrosion experts are flying in from across the world; hundreds of workers are being hired; bespoke 30-inch (75-c m) stain less steel pipelines and 30-story cranes may need to be obtained quickly, according to sources involved in the repairs.

Sources familiar with the effort provided Reuters with the most detailed account yet of what officials believe went wrong at the 325,000-barrels-per-day (bpd) unit known as vacuum pipestill-5 (VPS-5), showing how a series of seemingly minor glitches crippled the vast plant.

Source: Reuters via Yahoo! Finance; RPT-INSIGHT-In hours, caustic vapors wreaked quiet ruin on biggest US refinery, written by Erwin Seba.

Again, I'm just guessing that JEC was somehow involved -- I don't actually know.

Let's turn to the Skew Tab (below) to examine the vols by strike by month.

We can see a "normal" skew shape across all three front expiries,and then vol levels are, in large part, very similar. Even with the buying pressure in Jul (the puts), the Aug cycle shows higher vol due to an expected earnings announcement. To learn more about skew, you can check out this post: Understanding Option Skew -- What it is and Why it Exists .

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 I've highlighted the most recent three month period, where the stock has dropped from $44.62 (4-27-2012) just before earnings, to now below $34 (or down more than 24%). The 52 wk range in stock price is [$30.74, $48.17].

On the vol side, we can see how the implied had been dipping from early Jun to as low as 25.89% on 6-20-2012. But with the news today, the vol has exploded up more than 30%. The 52 wk range in IV30™ is [24.29%, 62.28%], putting the current level only in the 28th percentile. In English, the risk as reflected by the option vol has been much higher in recent past.

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This is trade analysis, not a recommendation.

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