Brocade (BRCD) - Stock Up, Vol Pops & Skew Goes Backwards on Takeover Rumors

BRCD is trading $5.82, up 3.7% with IV30™ up an impressive 18.7%. The LIVEVOL™ Pro Summary is below.



An Oppenheimer analyst (Ittai Kidron) opined on the storage stock sector. Among his opinions, he felt that Dell would buy BRCD now that hey are out of the 3PAR (PAR) running, losing out to HPQ.

BRCD has traded over 131,000 options in the first two hours on total daily average option volume of just 16,348. Calls have traded 123,000 times for a 15:1 call:put ratio. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates the action. Basically calls are trading, substantially purchases, some risk reversals (buy calls/sell puts) as well.



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



We can see a rare occurrence here. A "normal" stock (not bio-tech, solar or currency ETF) where the skew is completely backwards. The upside is bid relative to the downside. To read what normal skew is and why it exists you can click here: Understanding Option 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.



The stock hasn't been real exciting.

Possible Trades to Analyze
Naked buying the upside calls is a bit too expensive for me given the backwards skew. If you like a cheap upside bet for a takeover or stock jump:

An Oct 7/8 call spread for $0.10 could be a good "gamble." Likelihood is it's a loser, keep that in mind. A 5/6 or 6/7 call spread could be ok too given the skew. Even 1x2 to create a call spread for a premium could be in order, but beware the naked upside if there is a takeover or stock pop. Also, wider call spreads might be in order, like 5/7 or 6/8.

For the bears out there, the puts are actually cheaper than calls.

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Trade Journal: 9-6-2010

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Avanir Pharma (AVNR) - Bio-Tech with PDUFA and Options Order Flow with Trades

AVNR closed at $2.71 on Friday. The LIVEVOL™ Pro Summary is below.



AVNR is a pharmaceutical company focused on acquiring, developing and commercializing therapeutic products for the treatment of central nervous system disorders. They have a PDUFA date Oct. 30, 2010.

The company traded over 27,000 options on total daily average option volume of just 1,072. The largest trade, accounting for ~20,000 contracts was a sale of the Dec 2.5 straddle. 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 calls were opening (trade size >> OI), while the puts are ambiguous.



Note the vols at the top of the tab:
Sep: 82
Oct: 111
Dec: 200

Even without the news about the PDUFA, it's pretty obvious that the options reflect a volatility event after the Oct options. This is an interesting trade in that there is muted risk to the downside of stock.

Trade Stats
Sell 10,000 Dec 2.5 calls @ $1.00
Sell 10,000 Dec 2.5 puts @ $1.05
So on the downside, this breaks even with the stock trading $0.45. Or, in other words, only $0.45 of downside. And, in reality, a stock rarely goes to zero even on catastrophic news, so the downside, is even less. The upside is a different story, naked short and losing after $4.55.

If one were to cover that up with a Dec 5 call purchase for $0.60 the total credit drops to $1.45. The new breakeven range becomes: [$1.05, $3.95]. An alternative could be to sell the Mar'11 2.5 straddle. That vol is is 176 pricing the straddle @ ~$$2.40. If you cover up with the Dec 5 calls (DEC), the credit is ~$1.90.

Bio-techs are super risky, please don't trade this naked or with "meaningful" money if at all.

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Blackstone (BX) - Call Buyers Doubling Down

BX closed at $10.35 with IV30&. The LIVEVOL™ Pro Summary is below.



The company has traded over 30,000 options on total daily average option volume of just 6,099. The largest trade was a 16,200 lot for $0.86 in the Jan'12 15 calls (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 calls have a substantive OI. On 7-22-2010, 11,275 of those calls traded; 10,000 went up for $0.96 on a $0.76 x $0.99 market - purchases. The trades today are opening and doubling down on that long OI. You can also see that Apr vol is about the same as the other months even though earnings are in that cycle (a vol event).



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



Even though the monthly vols were down across the board, the Jan'12 15 calls did kink upwards from the buying interest. I've highlighted the strike in the skew chart.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV360™ - yellow vs HV360™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see that the historical (57) is actually above the implied (49) going out to 360 days. A vol purchase isn't the craziest trade I've ever seen. Having said that, I feel like this is more of an upside bet the a vol bet given the strike is 50% OTM.

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Gannett (GCI) - Risk Reversal Gets Long in Oct; Scalps Skew

GCI closed at $13.48 yesterday, up more than 5%. The LIVEVOL™ Pro Summary is below.



The company traded over 33,000 options on total daily average option volume of just 3,510. The largest trade was an Oct 10/16 risk reversal (sell puts/buy calls) 10,650 times, no stock for even. Darren Story of Student Options alerted me to this trade and gave me the color. 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).



Note that the Oct vol is above Sep, Jan'11 and Apr'11. This trade sells 59 vol and buys 44 vol; essentially selling the downside skew to fund the upside, yielding a premium neutral trade while accumulating a rather hefty OTM delta bet.

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



While the skew looks normal, we can see a fairly pronounced smirk. The downside is pretty bid relative to the upside. This trade makes use of the vol difference. Note that the trade gets long a strike that's $2.50 OTM, while selling a strike that's $3.50 OTM, yet pays nothing for it.

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 couple things to note here.
1) The IV30™ has diverged away from the HV20™. What's happened is that the implied has stayed steady as the stock has muddled around dropping the realized vol. The vol diff is now more than 10 points.
2) The retail order flow looks to be buying puts (see the red color in the volume bars at the bottom) as of early July.

I like that the trade is premium neutral; can't see a naked purchase of vol in this name, especially in Oct, without a really good reason. The 52 wk range is [$7.66,$19.69], so the stock has seen levels well above and below the strikes.

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Burger King (BKC) - Did Somebody Front Run the News?

BKC is trading $23.50, up 24.6% with IV30™ down 55.2%. The LIVEVOL™ Pro Summary is below.



-----------
The news, in case you don't know:
Burger King Holdings Inc., the nation's perennially No. 2 hamburger chain, said Thursday that it is selling itself to little-known private equity firm 3G Capital in a deal valued at $3.26 billion.

Its shares soared to an 18-month high.

Thursday's $24-per-share tender offer comes after a day of speculation about the deal that sent shares up more than 15 percent. The offer is a nearly 46 percent premium over the company's stock price before rumors of a buyout began circulating.
-----------

Jeff Kearns from Bloomberg did a story on the order flow before the announcement; interviewed me and Alec Levine from Wallach Beth. Jeff and Alec rightly pointed out some unusual call buying and growing OI in BKC before the news was out, and AFTER an earnings release. Alec illustrated that over 30,000 options were accumulated, which never happens in BKC.

The Livevol Pro Options Tab is included below (click to enlarge).



Note the large OI in the Sep 20 calls. This is what really got my attention. On 8-26-2010, 6,900 Sep 20 calls traded, pushing the OI from an already large 5,800, to over 11,000. What disturbed me mostly about this interest was the following:

1) The largest trade was 2,727 purchase for $0.30 on a $0.15 x $0.30 market three weeks before expo.
2) Earnings had passed, the stock was calm at around $17.

The big trade happened about 8 minutes after the open, so it feels sort of amateur rushed. Especially because the initiator payed up twice the bid. The 7,000 calls that traded represent more than 100% of the average daily total volume.

As of today the Sep 20 calls are worth $3.50 in parity, or 1,166% of the purchase price in a week. 3G Capital isn't a giant name in the private equity world; feels a little too lucky. Or, as I told Jeff at Bloomberg: "I don’t want to scream bloody murder, but it’s not normal."

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

H&R Block (HRB) - OTM Call Accumulators in Sep on Earnings Today AMC

HRB closed at $12.94 yesterday. Earnings are today AMC. The LIVEVOL™ Pro Summary is below.



Into earnings AMC today the company traded over 18,000 options yesterday on total daily average option volume of just 3,726. The action was in the Sep 14 calls, which traded 9,381 times (substantially 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 calls had substantive OI before, though smaller than the trade volume. This morning the OI is now 12,445 from 5987, so the calls were opening on long OI. On 8-27-2010, ~3,400 of these calls traded, mostly purchases. So the OI has opened up to its current level within the last 5 days.



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



Note how the Sep 14 line is kinked up into earnings (highlighted in the chart).

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.



Two things jump out pretty obviously.
1) The stock is way off it's highs and in the midst of a free fall. The 52 wk high is $23.23, 52 wk low is $12.54.
2) The IV30™ has a massive divergence to the HV20™. As of yesterday's close the gap was 47.5 to 23.40; so IV30™ is more than 100% higher than the HV20™. The divergence really opened up as the stock price started collapsing in the beginning of August (ish). Earnings due out today has pushed the divergence further, as expected.

Trades to Analyze
For just a "bet", a naked call purchase small could be worth some "gambler's" money. An Oct 12.5 call purchase against a Sep 14 call sale paying $0.80 is ok as well, though that gets long super elevated vega. For you vol sellers out there (eh hem), maybe wait for the earnings report, see if the implied stays elevated relative to the historical, (my guess is it does, though it's possible Oct vol drops 50% in a day, I doubt it) then get your short vega without risking an earnings move.

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Rowan (RDC) - Stock and Vol Pop on Economic News; Skew Converges Too Tight

RDC is trading $27.96, up 8.8% today with IV30™ up as well 6.2%. The LIVEVOL™ Pro Summary is below.



RDC is a provider of international and domestic contract drilling services. The stock popped today on the U.S. manufacturing data for August.

The company has traded over 13,000 options on total daily average option volume of just 2,024. The largest trades have been Sep 27 put sales, Sep 28 call purchases, Oct 26 put purchases and Oct 27.5, 29 call purchases. Note the Net Premium and Net Deltas; in totality, the order flow is buying premium and buying deltas. 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 of the those active lines are mostly opening (compare OI to trade size).



Note also the vol in Sep and Oct is up while Jan'11 is unched and Apr'11, Jan'12 are down.

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



It's interesting to see how the vols across the first three months have now converged basically on top of each other. The skew shapes are also similar. I actually feel like the Oct and Sep skews aren't steep enough relative to Jan'11.

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 pop today on the news. The IV30™ is above the HV20™ and has been for a couple months now. The skew chart from three months ago is included below (click to enlarge).



We can see that RDC does have a somewhat muted skew, but it certainly normally has some divergence from the skews.

Possible Trades to Analyze
It could be interesting to sell Jan'11 OTM puts while buying Oct OTM puts. In mid Oct, close it down, and hope for a vol divergence (i.e. Oct OTM vol goes higher than Jan vol). Another opportunity could be to hope this continues until Sep expo, and do a Nov/Oct or Jan/Nov spread.

Yes, this is really happening. I want to look at buying skew for once... man it's slow...

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

* UPDATE: Hertz (HTZ) - Jan Call Interest, Spiking Vol, Stock Near Annual Low

*UPDATE

HTZ is trading $9.01, up 5.9% with IV30™ down 5.8%. The LIVEVOL™ Pro Summary is below.



This is an update to the blog I posted yesterday (8-31-2010): Hertz (HTZ) - Risk Reversal Trades in Jan on Stock Yearly Low

Yesterday I noted that:
"The company has traded over 12,600 options on total daily average option volume of just 1,652. The largest trade was a Jan'11 7.5/10 risk reversal (sell puts/buy calls)."

Today Darren Story from Student Options told me:
"HTZ jan 10 c 5000 traded 1 custy bot and crossed out right."

The company has traded over 8,000 options in the first three hours on total daily average option volume of just 1,865. The largest trade is the Jan'11 10 call purchase. 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 OI in the Jan'11 calls is already 5,000+; we know from yesterday this is long interest from the risk reversal. This is another bullish bet on the same line.



The Jan'11 10 calls are trading at about 59 vol which is less than the IV30™ which itself is down 5.4% today.

Let's look to the Charts Tab (click to enlarge) before the Skew Tab. 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 still see an impressive divergence of the implied to the historical with IV30™ at ~63 and HV20™ at ~36. The stock has pooped a bit today with the general market, but is still hovering near it's 52 wk low of $8.36.

Also notice the green coloring of the volume bars at the very bottom for the last two days. This is opening order customer call purchasing on ISE.

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



It's interesting that the Jan'10 call skew is still "unaffected" by the buying interest. Hmm...

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Allied NV Gold (ANV) - Gold Futures Options Are the Story

ANV closed $23.45, up 3.6% yesterday with vol ripping in all months. The LIVEVOL™ Pro Summary is below.



An unconfirmed report said Bloomberg shows that the most widely held option on gold futures in New York is the $1500 strike, which is a bet of new all time highs (by 20%) by Dec. Allied Nevada Gold Corp. (Allied Nevada) is a gold producer, which operates the Hycroft Mine and has a large number of exploration claims in the State of Nevada.

The company traded over 16,000 options on total daily average option volume of just 936. Calls traded on a 6:1 ratio to puts with 12,000+ Oct 25 calls trading. I believe they're purchases. The orders were relatively small; feels like it might even be "newsletter" driven volume, but I can't confirm that. 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 calls are opening (compare OI to trade size). The OI is 7,000 this morning, so there was a bit of two way trading. Note also that the largest OI other than that line is outside of Sep is in the hundreds (I believe 696 is the largest in the Oct 22.5 puts) so this is substantive size in this name.



Note also the vol across the months jumped. Oct was up 9 points or 20%.

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



You can see the Oct 25 line skew has kinked upwards - makes pretty good sense. For those of you that look into broader economic plays, gold going up 20% isn't exactly good news though it does point to inflation rather than deflation.

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.



Note how the stock has ripped from $15 (ish) to now over $24. The IV30™ has seen a spike from yesterday's action leaving a 55 to 43 IV30™ to HV20™ divergence. ANV is up 2.5% today at the time of this writing (9:41 EST).

In terms of possible trades, the straddles seem pretty fat. An Oct 25 straddle sale @ $3.50 and purchasing an Oct 30 call for $0.35 leaves a $3.15 credit. Protected to the downside until $21.85 and a gain to the upside up to $28.15.

If you like the delta bet, An Oct 25/30 call spread looks pretty nice if you can pay $1.05 or less. Doing it 1 x 1.5 gives you a smaller outlay but increases the margin a bit.

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html