Monday, October 15, 2012

Ascena Retail group (ASNA) - Calendar Spread opens as Expiry Approaches; Depressed Vol into Earnings

ASNA is trading $20.25, up 1.3% with IV30™ up 4.5%. The LIVEVOL® Pro Summary is below.


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Ascena Retail Group, Inc. (Ascena) is a national specialty retailer of apparel for women and tween girls operating, through its wholly owned subsidiaries, the dressbarn, maurices, and Justice brands. As of July 28, 2012, the Company operated over 3,800 stores throughout the United States, Puerto Rico and Canada.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Let's stat with the Skew Tab (below).

We can see two phenomena:
1. The front is elevated to the back (note that the font represents just 4.5 trading days as Oct expiry is here at the end of this week).
2. There is an upside skew in the Oct options creating an even greater vol diff.

Let's turn to the six-month Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

While the stock has had its ups and downs, ultimately it's almost unched from six months ago (was $21.14 and now is $20.25). The stock has rallied from the ~$17 level in early August. The 52 wk range in stock price is [$12.69, 22.62], so it is nearing an annual high which would also be a multi-year high.

On the vol side we can see how choppy the implied has been, yet as of this writing, the IV30™ is essentially equal to the long-term historical realized vol and just above the short-term historical realized. Specifically:

IV30™: 32.29%
HV20™: 28.35%
HV180™: 31.86%

So vol feels fair(ish). The 52 wk range in IV30™ is [25.62%, 55.20%], putting the current value in the 22nd percentile (annual).

Finally, let's look to the Options Tab (below).

Across the top we can see the monthly vols re priced to 46.10% and 32.29% for Oct and Nov, respectively. Even Dec is priced to just 34.97%, and the next earnings release should be in early Dec / late Nov (but outside Nov expiry).

Looking specifically at some prices, we can see Oct/Nov 21 call spread shows a ~20 point vol dif while the Oct/Dec shows a ~19 vol point diff. An interesting position to analyze could be to own Dec (with earnings) while selling the four day vol in Oct to collect some premium. If that works out, maybe then selling some Nov (even diagonal) as the Nov / Dec vol spread feels a bit tight as well, given the earnings event in Dec. Ya know, or not...

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This is trade analysis, not a recommendation.

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