Thursday, February 28, 2013

Gardner Denver (GDI) - Calendar Vol Diff Opens; Stock Gaps Wildly; Apr Vol at Annual Lows

GDI is trading $71.78, up 1.3% with IV30™ down 2.5%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Gardner Denver, Inc. (Gardner Denver) designs, manufactures and markets engineered industrial machinery and related parts and services. The Company is a global manufacturer of engineered compressors and vacuum products for industrial applications.

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 turn to the Skew tab to examine the vol diff and what is also a pretty weird skew shape.

We can see the vol diff between the front and the back months. There is a bit of a convergence to the OTM calls, or said differently, the vol diff is at its largest to the put side.

Now we can turn to the one-year Charts Tab (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 how wildly this stock can gap. It's almost a regular occurrence every few months. Oddly, there were two gaps in the last six months that were not on earnings dates.

On 10-25-2012 the stock went from $54.75 to $66 on news that the firm was considering a sale. Then on 12-21-2012 the stock fell from $75.54 to $67.40 when news broke that buyout talks were over. There was also a $3 gap up of of the earnings release on 2-22-13 BMO. This may be a stock priced to 34% IV30™, but its HV90™ is 43.71%. In any case, the Skew Tab reflects greater risk in the front month than the back, and by quite a large amount to the put side.

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

Across the top we can see that Mar vol is priced to 38.73% while Apr is priced to 26.32%. It's that vol diff that triggered the scan. Selling ~39% vol seems a little risk but owning vega for ~275 vol seems interesting. The 52 wk low in IV30™ is 25.44%.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:

1 comment:

  1. HI interesting piece, could you clarify what you mean by 'owning vega for 275?'