Novartis (NVS) - Oct Bearish Trades Dominating Option Order Flow

NVS is trading $49.19, up 1.1% with IV30™ down 2.9%. The LIVEVOL™ Pro Summary is below.



The company has traded 22,299 options on total daily average option volume of just 3,314. 22,000 of the contracts went up in a single trade; an Oct 45/55 risk reversal (buy puts/sell calls). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the puts and calls have massive OI already.



It turns out on 6-24-2010 (i.e. a few weeks ago) the same trade went up 9,190 times, and then again on 6-30-2010 for size. The historical trades snapshot from 6-24 is included (click to enlarge).



The 11,000 today are tripling down on the same line. Today the trade cost $0.80; it cost $0.90 on 6-24 and ~ $0.87 on 6-30. The entire OI plus today's trades PnL at Oct expo is included (click to enlarge) using an average price of $0.85.



The 52 wk range for the stock is [38.97, 56.42]. The PnL for this position at those levels (assuming no stock hedge) is:
P(38.97) = $15,540,000
P(56.42) = -$6,810,000
Umm, that's size.

The stock averages 3.5 million shares a day, and today only 1.75 have traded; so it's certainly not obvious if stock traded on those riskies.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



The skew looks pretty normal. Jan '11 looks a bit weird with the upward bend but that's just a nickel bid on the 70 calls.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV90™ - red vs HV90™ - blue). The yellow shaded area at the very bottom is the IV90™ vs. the HV90™ vol difference.



We can see the IV90™ is always above the HV90™ (or has been for 6 months). Long term vol looks like a sale according to that, but of course, the past doesn't predict the future. For what it's worth, the risk reversal does get long a little vol just based on skew. The 30,000 riskies create a vega position of $27,000/vol using today's values (vega).

The stock dipped pretty hard then bounced off a low and has been in a very small range recently.

This is trade analysis, not a recommendation.

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* UPDATE: VTR (Ventas) - Orderflow Winner Trades Again; Same Strikes, Different Side

VTR closed yesterday at $46.09. The LIVEVOL™ Pro Summary is below.



Ventas, Inc. is a real estate investment trust (REIT) with a portfolio of seniors housing and healthcare properties in the United States and Canada.

I posted an article on this company back on May 19th (click the title to read it): Ventas (VTR) - Jun Vol Seller on Range Bound Stock.

In that post, a June 40/50 strangle seller 3000x came in with the stock at $46.13. The trade won max gain of $285,000. Yesterday, the same strikes traded in Aug, but the trade is different.

The company traded over 10,000 options on total daily average option volume of just 996. All but ~85 contracts were accumulated in one position; an Aug 40/50 risk reversal (buy puts/sell calls). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that both the calls and puts are mostly opening (compare OI to trade size).


The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



Much like the last post with the strangle seller, we can see the vol in the puts is considerably higher than the calls. i.e. the skew holds a normal shape.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see this choppy action in the ($40,$50) range. The bet this time is for a drop below $40 rather than a continuation of this trend. Note that earnings are due out late July (ish).

This is trade analysis, not a recommendation.

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Dana Holding (DAN) - Betting Bullish After Dive

DAN is trading $9.20, down 3.1% today with IV30™ up 3.9%. The LIVEVOL™ Pro Summary is below.



Dana Holding Corporation (Dana) is a supplier of axle, driveshaft, structural, sealing and thermal management products for global vehicle manufacturers. It designs and manufactures products for every vehicle producer in the world.

The company has traded over 5,000 options on total daily average option volume of just 1,394. The action is in the Dec 15 calls (purchases) and Jul 10 puts (sales). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that both the calls and the puts are mostly opening (compare OI to trade size). You can also see Aug vol is elevated to the rest of the months because of an earnings cycle (a vol event).



The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



It's a pretty normal lookin' skew; note the Dec upside (17.5) actually bend back up a bit, but the Dec 15 calls are the lowest vol in the entire options chain. That's a little weird given the order flow. My guess is that if the flow continues, that vol will rise accordingly.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



A few things to note:
1) The stock fell off a cliff a few weeks ago.
2) It had a couple days of "nothingness". (i.e. Chartists may call this, "building a base.")
3)The IV30™ has moved well past the HV20™ (about 75.50 to 60.0)

This stock chart is actually pretty similar to a bunch of stocks in the market right now. The order flow in Dan is a turn to the upside. The real question is, will the market "build a base," or are we headed for another cliff dive. One scenario calls for big vol sales, the other, for big vol purchases. Heads or tails, heads or tails, heads or ....

This is trade analysis, not a recommendation.

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ADTRAN (ADTN) - Vol Purchase into Earnings on Crushed HV

ADTN closed at 27.24 on Friday. The LIVEVOL™ Pro Summary is below.



Before getting to the order flow on Friday, let's look at the Charts Tab (6 months) below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



Note how the stock price has been resilient in the face of the overall market drop. The stock has remained in a very tight range over the last month or so. You can see how the HV20™ (blue line in the bottom chart) has dropped precipitously yet at the same time the IV30™ (red line in the bottom chart) has risen. The divergence is now 46 to 20.

The company traded over 5,000 options on total daily average option volume of just 699. The action was in the Jul 25 puts (purchases) and the Aug 30 calls (sales) totalling 5,054 contracts. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the puts are mostly opening (compare OI to trade size) but the calls are ambiguous. If you look at OI today, we can see that it jumped by the trade amount, so the interest is short and the trades on Friday were opening again. You can also see that July vol is well above Aug; earnings are scheduled for 7-14-2010 BMO(a vol event).



The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



It's interesting to see that the put purchase in July is on 59 IV, and the Aug call sale is 33 IV. The skew is normal but pronounced and the July vol is elevated b/c of earnings. Sort of a double whammy to the trade. The spread paid even; i.e. bought and sold options for the same price of 40. This will be an interesting earnings to watch as it's just three trading days before expiration. It feels like vol should be coming down given the HV, but with earnings coming up, that's tricky.

This is trade analysis, not a recommendation.

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Materials Select (XLB) - Three Large Trades With Conviction

XLB is trading 28.03 with IV30™ up 2.3%. The LIVEVOL™ Pro Summary is below.



This ETF primarily consists of companies involved in such industries as chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products.

The ETF has traded over 69,000 options on total daily average option volume of just 18,735. The five lines in play are the Sep 24 puts (sales), Sep 28 puts (purchases), Sep 34 calls (purchases), Aug 28 puts (purchases) and Jul 32 puts (sales). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the Aug 28, Sep 24, Sep 28 and Sep 34 options are opening (compare OI to trade size). From what I can tell, the Jul 32 puts are short interest and the trades today were also sales. I've indicated with "+" or "-" next to the lines to show purchases (+) or sales (-).



I see three distinct trades here:
1) 10,000 Sep 24/34 risk reversal (sell puts/buy calls).
The trade was done for a $0.64 credit so it make money as long as XLB stays above $23.36 on Sep expo. It starts to make huge money when the ETF rises above $34.

2) July 32 / Sep 28 put spread (sell July/buy Sep) 15,000/18,000 times
This is done for a credit and is bullish as it sold the deep ITM puts.

3) Buy 10,000 Aug 28 puts for ~$1.51

The first two are long delta, the second is short. All three show some conviction. The ETF averages 13 million shares a day and only 7.5 (ish) million have traded today, so it's hard to tell if these went up with stock throughout the day.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month on the lines that traded (highlighted).



It's interesting to see the trades occurring all over the skew. That's why the skew has remained in good form, there is no reason for kinks to develop.


Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see the ETF has dropped hard recently (like the rest of the market). Vol has spiked past the realized in lock step with the recent drop. The housing (and commercial) market news has been bad recently and this ETF is sensitive to that.

Of all the trades, I like the risk reversal the best simply b/c it's done for a credit with a wide range of profitability; it allows for both a continued drop and a sharp recovery.

This is trade analysis, not a recommendation.

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Alliance Data (ADS) - Huge Vega Sale on Highly Elevated Vol

ADS is trading $56.64, down 4.8% today with IV30™ up 6.6%. The LIVEVOL™ Pro Summary is below.



The company has traded nearly 18,000 options in the first three hours on total daily average option volume of just 1,888. All but 2,156 contracts have been puts yielding over a 7:1 put:call ratio. The largest trade was 13,290 Sep 50 puts crossed electronically on the bid on CBOE; I believe that to be a sale. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the puts are opening (compare OI to trade size). I don't see any line in the front three months with more than 2,500 OI, so 13,290 is really big for this company.



The trade printed at 10:45 EST. When I looked up Time & Sales for the stock, I see a 318,960 lot traded at 10:46 EST (i.e. one minute later). I have included the snap (click to enlarge).



The exchange reported the stock trade as "Regular," but it printed more than $0.50 out outside of the NBBO. The PnL chart is included below, but I am using $57.83 stock (the stock value according to the option trade) rather than the price the exchange reported which seems erroneous.

Trade Stats
Sell 13,290 ADS Sep 50 puts @ $2.30
Sell 318,960 ADS stock @ $57.83
That number shares works out to a 24 delta.
Max Gain (at $50 at expo): $5,554,157
Breakeven Low: $44.50
Breakeven High: $67.41



This trade is short $112,965.00/vol. In other words, each vol point carries over $100,000 in PnL. Note that vega is not constant (the second derivative of price with respect to vol is not zero). Let's get back to the vol in a sec. First the skew tab.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



Pretty normal lookin' skew.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see a sharp price decline and the IV30™ (red line) moving well above the HV20™ (blue line).

I have also included the vol chart of HV90™ (dark blue line) vs. the IV90™ (green line).



Note how far the implied (green) is trading above the historical (blue). The Sep options correspond more closely to the IV90™ than the IV30™ if looking to expo. Either way, this trade sells highly elevated vol in a stock that has dropped hard recently. The trade does have room for another ~$9 of stock drop before it loses money.

This is trade analysis, not a recommendation.

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BJ Wholesale Club (BJ) - Stock Rips on Rumors; Vol Jumps on Uncertainty

BJ is trading $43.28, up 16.9% today with IV30™ also rising 13.8%. The LIVEVOL™ Pro Summary is below.



--------------
The news from the AP is this:
A private equity firm has bought a large stake in BJ's Wholesale Club Inc. and says it plans to talk with the warehouse club's executives about the potential for taking the company private.

Green Equity Investors bought 5.1 million shares of BJ's stock and said the shares are undervalued, according to a regulatory document filed Thursday. That represents about 9.5 percent of the company's shares.

Green Equity plans to discuss options for improving shareholder value including taking the company private, new financing or other transactions.
--------------

The company has traded over 8,200 options on total daily average option volume of just 578. The action is in the front month 40 puts, 45 calls and the Aug 45 calls as well. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that all three of the high volume lines are mostly opening (compare OI to trade size). I believe the July calls and puts are purchases; I can't tell about the Aug 45 calls - but I'm guessing long based on the order flow.



Let's take some time to look at the Options Montage and see if we can back out any probabilities or identify good trades.

1) The Jul 40/45 call spread is $3.28 in the money. Right now mid market has it worth $2.95. The max gain is $5 - cost = $2.05. Max loss is the price = $2.95. Max Gain/Max Loss = 2.05/2.95 = ~0.70

If everything were random, with the stock at $42.50 you would expect a 1/1 ratio of max gain to max loss (normally we also need to consider cost of carry, but rates are low and this is short term so we'll skip it). This front month call spread doesn't help much, as 0.70 seems about right with the stock at $43.28.

2) Another interesting trade could be to sell the Jul 45 calls against a purchase of the Aug 45 calls for $0.80. That would be buying 33 vol and selling 36 and hoping for the stock to expire just below $45 and then either sell the Aug calls out after the Jul expire worthless, or even more ambitious, hope the stock does in fact realize a price well over $45 on substantiated news.

3) On the flip side, an Aug/Jul 40 put spread costs ~$0.70. If you think this is non-sense but the stock remains above $40 until July expo, that could be a nice winner.

4) Finally, if you just think the vol is too high right now (see charts tab discussion below), you could sell the straddle you think the stock is going to. i.e. If you think it pins at $45, sell that straddle, if you think it drifts down to $40, sell that one. You could cover up with the July 35/50 strangle for ~$0.10 if you had to. It would have been nice if the 42.5 strike were available in any of the months.

Trade Stats
Sell 1 July 40 straddle @ $3.55 + $0.35 = $3.90
Profitable at expo if stock ($37.10, $43.90)

Sell 1 July 45 straddle @ $0.60 + $2.30 = $2.90
Profitable at expo if stock ($42.10, $47.90)

The alternative is to buy the high vol and therefore buy the straddles.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



Since the skew has found it's prices (i.e. discovery period is over), there aren't any big kinks, and therefore not necessarily any obvious trades. If you disagree, let me know.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see the stock has ripped today and IV30™ has pushed past the the HV20™ which indicates low certainty of this transaction. Usually, if a take out deal is considered high probability, the vol goes down. That doesn't mean it won't happen, it means the market reflects no strong opinion yet.

This is trade analysis, not a recommendation.

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Norfolk Southern (NSC) - Vol Buyers Push IV Past HV; Unusual Open Today

NSC is trading $52.18, down 1.6% with IV30™ up 9.3%. The LIVEVOL™ Pro Summary is below.



Right at the open and for the next hour there has been interesting action in the stock and the options. The tick chart (click to enlarge) is included.



We can see the spike at the open to the ~$53.90 level, and then a precipitous drop to ~$52.05 with the front month vol jumping more than 10%.

The company has traded over 9,200 options in the first hour on total daily average option volume of just 2,447. Calls are trading on a 4:1 ratio to puts. The action is in the Jul 55 calls where nearly 6,800 have traded (mostly purchases) and the Jul 50 puts where over 1,100 have traded (also mostly purchases). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the Jul 55 calls are mostly opening (compare OI to trade size). The Jul 50 puts are ambiguous at first blush as trade size < OI. From what I can tell, I'm fairly certain that the OI in the puts is long, so this is opening and will increase the OI tomorrow.



The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



I've highlighted the 55 line, the 50 line is to the left. The skew looks pretty normal, though July is elevated to the other months even though earnings (a vol event) are projected to fall in the Aug cycle and not in July.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



A few things to note:
1) The IV30™ (red line, bottom chart) has now crossed the HV20™ (blue line, bottom chart).

2) The stock has a really weird stock pattern, up to ~$60 then down to ~$52, then back up, back down, etc...

3) On the very bottom, the volume bars illustrate how unusually high the volume is today (and it's just been an hour).

Vol buyers are present even as IV30™ spikes past HV20™, mostly bullish action but growing OI in the puts as well.

This is trade analysis, not a recommendation.

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