Friday, December 7, 2012

SandRidge (SD) - Option Volume Explodes for Consecutive Days; OTM Calls Trading Size, Skew Calendar Diff Opens and Vol Hits Annual High

SD is trading $7.17, up 5.6% with IV30™ up 7.0%. The LIVEVOL® Pro Summary is below.


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SandRidge Energy, Inc. (SandRidge) is an independent oil and natural gas company. It is engaged in development and production activities related to the exploitation of its holdings in West Texas and the Mid-Continent area of Oklahoma and Kansas.

This is a vol and stock note -- focusing on a skew vol diff through a calendar and rising stock and a new overall vol high. Let's start with some order flow.

The company has traded nearly 195,000 contracts on total daily average option volume of just 19,435. Calls have traded on a 2.9:1 ratio to puts with the action in the Jun 7, Jun 10 and Dec 10 calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls in Dec are mostly opening (compare OI to trade size). These look like long positions with an existing OI which opened up almost entirely yesterday in a single 11,000 contract call purchase. But that's not even close to the whole story, as those calls look like they may have traded in a spread, or were mitigated by a Dec 8 straddle trade for size (and I can't tell the direction). 

Yesterday SD traded over 150,000 contracts -- so this is the second day of enormous trade volume. The stock volume is already about 2x the daily average as well today, and traded 2x yesterday too. In any case, the extreme volume yesterday is getting outpaced today.

Note across the top of the options tab how elevated Dec vol is to Jan. The Skew Tab snap (below) illustrates the vols by strike by month.

We can see that Dec vol is well above Jan, but even more eye catching is the upside vol diff that has opened up between those two front expiries. Full disclosure: I traded that calendar small (so far) today.

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 run-up of late -- the stock has risen from $5.19 on 11-14-2012 to now above $7. The 52 wk range in stock price is [$4.81, $9.04].

On the vol side we can see the meteoric rise in vol as the volume has increased. I've included a one-year IV30™ chart below.

We can see that spike up of late -- quite abrupt and into new annual high territory. The implied has reached over 125% in this name back in August of 2011, so while the current IV30™ is an annual high, it is not a multi-year high. This will be a fascinating one to watch though Dec expiry. I do note that there's a ton of volume in Jun as well.

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This is trade analysis, not a recommendation.

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