Risk Laboratory: Ophir Gottlieb

Monday, October 11, 2010

Immunogen (IMGN) - Calls Bought Ahead of Conference Call

IMGN closed $7.10 on Friday, with IV30™ up 25% coming into this morning's conference call. The LIVEVOL™ Pro Summary is below.

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The Options Tab (below) illustrates that the calls were substantially opening (compare volume to OI).

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see in late August the stock gapped down hard but since then has done a steady climb up. Today the stock is trading $7.75 pre-market on the conference call. The calls bought for $0.275 at this moment, pre-open are worth at least that in parity, so those look like a winner as of right now.

The Nov 7 calls also traded substantially opening purchases for ~ $0.75. Those could be a winner, but we'll have to see where vol goes.

This is trade analysis, not a recommendation.

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Friday, October 8, 2010

* UPDATE: McMoRan (MMR) - Vol Exploding Again

MMR is trading $18.82, up 4.6% with IV30™ ripping again, up another 15.4%. The LIVEVOL™ Pro Summary is below.

I posted a note on this company yesterday:
McMoRan Exploration (MMR) - In Play: Time Spread, Popping Vol and Earnings

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The Skew Tab snap (below) illustrates the vols by strike by month.

We can see the massive vol diff now opening up. From the Options Tab (below) we can see that front month vol is up 18.9 points to 126.74 and second month vol is up 15.6 points to 94.38.

This feels dangerous, yet also exciting... I think being naked short or long options is quite risky at this point.

This is trade analysis, not a recommendation.

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M&T Bank (MTB) - Low Vol into Earnings

MTB is trading $77.18, up 0.4% with IV30™ down 7.9%. The LIVEVOL™ Pro Summary is below.

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News: (Click for Reference)
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A “diverse group of institutional investors” has purchased Allied Irish Banks PLC’s entire 22.49 percent stake in M&T Bank Corp.

An Oct. 7 memo from M&T chairman and CEO Robert Wilmers to M&T employees states that AIB’s stake was placed with investors in less than 24 hours. The 10 largest buyers, on average, purchased less than 1 percent of the outstanding stock through AIB’s public offering, according to Wilmers’ note
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I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price <= $7 IV30™ - HV20™ <=-8 >= -40
HV180™ - IV30™ >=7
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >= 32

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 short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). 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 purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

Looking to the MTB Skew Tab (below) we can see that Oct (red) is above Nov(yellow) and Nov has an earnings cycle (a vol event).

The MTB Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see:
IV30™: ~29.22
HV20™: 41.45
HV180™: 37

So, IV30™ is depressed relative to the short term and long term realized movement of the stock. Last earnings cycle MTB front month vol got as high as 40.87 the day before and two cycles before vol rose to over 34.

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

Possible Trades to Analyze
1. This was a scan to find vol to purchase so, buying the Nov75/80 strangle for $4.10 is a naked vol purchase trade.

2. #1 with a sale of the elevated vol in Oct drops the total debit by ~$0.90 but does risk MTB moving outside of the 75/80 strikes in the next week.

3. #2 looks even better if it works out, then selling the 70/85 strangle in Nov after Oct expo in terms of lessening the total debit.

4. Combining the above with offset strikes and perhaps doing some ratios also lead to some interesting PnL bets.

This is trade analysis, not a recommendation.

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J.C. Penny (JCP) - Stock Pops, Vol Pops, Vol Divergence

JCP closed yesterday at $31.64, up 9.1% with IV30™ jumping 15.6%. The LIVEVOL™ Pro Summary is below.

I noticed JCP yesterday near the close. The stock and vol started popping. The Tick Chart is included (below).

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The news from Barron's: (Click Here for Article)
Shares of JC Penney (JCP) are up $1.74, or 5.5%, at $33.38, after Bill Ackman’s Pershing Square Capital filed schedule 13D with the Securities & Exchange Commission saying that the firm has taken a position of 16.8% of the shares outstanding.
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As of a few minutes into the open, JCP is up another 4.1% with IV30™ dipping a bit by 4.5%.

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The company traded over 162,000 options on total daily average option volume of just 13,683. The action was spread around, with nearly 19,000 Nov 30 calls trading, substantially sales as I see it. The Oct 31 calls traded over 3,000x, and I see those as purchases. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action by line. Further, at the top we can see the huge vol increase in Oct of 19 vol points or 38%. Nov rose 6 vol points or 13%.

A large divergence has formed between Oct and Nov, while Nov may have earnings on the 12th which makes this an interesting phenomenon as earnings are a vol event.

The Skew Tab snap (below) illustrates the vols by strike by month.

The vol in Oct (red) closed very rickety (is that a word?). I am betting by the open price discovery will push the vol either up or down, but either way it will be smoother... or I'm wrong... (is there an all of the above choice?)

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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the stock rise of late with a vol rise.

Possible Trades to Analyze
As of 9:39 EST, I am looking at the Options Montage to get prices.

1. A buy-write. Buy JCP stock and sell a call, maybe the Oct 34 strike @ ~$0.55.

2. #1 but purchase an Oct 31 put for $0.40.

3. Sell the Oct 30/34 strangle @ $0.80, buy the Nov 30/33 strangle for $3.30 or a net debit of $2.50. Thosse strikes are sort of random, any kind of calendar seems like a reasonable trade for analysis.

This is trade analysis, not a recommendation. Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

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Thursday, October 7, 2010

Adobe (ADBE) - Vol Explodes on Takeover Rumors with MSFT Right Now

ADBE is up 8.0% with IV30™ up a huge 74.4%. The LIVEVOL™ Pro Summary is below.

Looking to the Options Tab (below), we can see the Oct 34 calls are $0.20 bid priced at 106 vol. HV10™ is 21.33. Nice... Keep in mind ADBE is actually at a "discount" right now given their collapse after the earnings release on 9-21-2010 AMC.

The stock went from $32.94 to $26.67 in a day. It's reasonable to assume a takeover price would be at a substantial premium to even the 34 strike. Happy spec to anyone who wants to trade this one.

One note - it may be possible to do an Oct/Nov 34 call spread for nearly even (sell Oct/buy Nov). If done for even, that's an arb.

This is trade analysis, not a recommendation.

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McMoRan Exploration (MMR) - In Play: Time Spread, Popping Vol and Earnings

MMR is trading $17.12, up 1.6% with IV30™ up 11.2%. The LIVEVOL™ Pro Summary is below.

MMR is engaged in the exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area of the United States.

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The stock just came up on two real-time custom scans. The calendar spread and high vol scans. With earnings confirmed in the Nov cycle (Monday of the new cycle), this is an interesting trade.

You can read about the two custom scans here:
Time Spread Custom Scan
Elevated Vol Custom Scan

The goal with the calendar spread scan is to identify back months that are cheaper than the front by at least 8 vol points. The goal of the high vol scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). Details and caveats in the links above.

Let's look to the Skew Tab (below) and examine both the shape and the absolute vol differences.

So we can see both elevated Oct vol (red) to Nov (yellow) and a substantial upside skew bend in Oct. Hmm...

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

So we're looking at this:
IV30™: 75.30
HV20™: 58.75
HV180™: 62

So the short term vol, and in particular the Oct vol (91.62) is quite elevated. We can also see that the stock has gone from ~$10.80 up to $17.12 in just two months.

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

Potential Trades to Analyze
1. Sell that Oct vol. A 17/18 or 16/19 strangle sale looks pretty juicy, though risky and naked two sides.

2. Do a 1x2 twice. The upside skew bend gives the opportunity to buy ATM for lower vol that the OTM on both the upside and the upside. An Oct 19/20 1x2 call spread should yield ~ $0.12 credit. An Oct 16/17 1x2 put spread should yield ~$0.05 credit. Beware naked up and downside though in a stock with popping vol.

3. Time spread. Sell Oct ATM (or strangles) @ ~92 vol and buy the Nov options for ~ 73 vol and get earnings.

4. #3 with a twist. Sell the Oct 16/19 strangle @ ~$0.80 and buy the Nov 18 calls for $1.35. That's a net debit of $0.55. This trade wins to a stock pop or a takeover. It also wins to stock sitting and wins to theta. It loses to a downside move as it's naked short puts. A slight adjustment to this could be to buy the Oct 15 puts for $0.25 (ish) to help with margin or simply doing the call side and leaving the puts alone.

5. Time spreading the skew. So, Sell Oct 19 calls @ $0.36 and buy Nov 19 calls for $1.03. That's selling 99 vol and purchasing 73. This loses to takeover, but max loss is limited. Of all the trades, I think this is the most interesting. An alternative is doing Oct 19 with Nov 18 to have some deltas.

Make sure to check why this vol is elevated, as I can't find a clear reason.

This is trade analysis, not a recommendation.

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* UPDATE: Marriott (MAR) - Earnings Vol Update

MAR is trading $35.36, down 6.6% with IV30™ down 5.0% on earnings. The LIVEVOL™ Pro Summary is below.

I posted a note on MAR and earnings vol with order flow on 10-5-2010 (i.e. two days ago). You can read the article here:
Marriott (MAR) - One-Sided Trades into Earnings Push Vol

In that article on the 5th I noted that the order flow was buying vol in the front month into earnings. we also noted that earnings vol in general seemed relatively fair in MAR in prior cycles as no clear cut front or back spread strategy proved consistently profitable.

The trades we took a look at were:
1. Buy the Oct 38 calls like the order flow.

2. Buy the Oct 37/38 strangle for $1.55.

3. Do #2 above, but also sell the Oct 35/40 strangle @ $0.45 netting a net debit of $1.15. Of all the trades, I like this type the best, naked purchases are a bit too risky for earnings vol for me.

4. Alternatively, go opposite the order flow, sell some vol in straddles or strangles. Risky of course, especially in the face of vol buying.
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Let's look to the Options Tab now (below).

So #1 and the contrarian #4 were losers. The order flow was pretty clearly vol bying as I mentioned in the article - without an obvious delta bias. As I wrote: "The call buying yesterday may be a delta bet or it could be straight vol, as the buyer may have sold stock against the calls to turn them into puts or straddles."

If it was a straight vol purchase, then it was a winner. Trades #2 and #3 worke like this:

2. The strangle bought for $1.55 is now worth ~$1.875, so a 21% gain in 2 days.
3. The condor (ish) bought for $1.15 is now worth ~$1.25, for a smaller 9% gain, though if MAR sits, those 35 puts will go down.

This is trade analysis, not a recommendation.

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BMC Software (BMC) - Bullish Flow, Skew Kinks and a Calendar

BMC is trading $42.60, up 7.4% with IV30™ up 11.9%. The LIVEVOL™ Pro Summary is below.

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I wrote about BMC a couple times, noting the upside skew kinks, though at times the flow looked bearish as well. Today, I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price >= $7 <= $70
IV30™ - HV20™ >= 13
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings <=10 >=75

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 short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). 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 IV30™ simply because earnings are approaching.

BMC is up, I think the move is related to news of their acquisition of a software business (Neptuny), but not sure. The company has traded over 24,000 contracts in the first hour on a daily average of just 2,575 with a 3.5:1 call:put ratio. The Stats Tab is included (below).

The BMC Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see:
IV30™: ~41.8
HV20™: 17.29
HV180™: 26

So, IV30™ is substantially elevated relative to the short term and long term realized movement of the stock. We can also see the gap up in stock price. Let's look to the Skew Tab (below).

There's a pretty clear upside skew in both Oct (red) and Nov (yellow). The largest difference is the 45 line, where the Oct calls are priced at ~48 vol, versus ~42 vol in the Nov options.

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

We can see that the Oct 43 straddle is priced at ~ $2.30 (43 vol) and the Nov 42.5 straddle is priced at ~ 4.80 (41 vol). Like a few of my recent posts, this is interesting as earnings are a volatility event in the Nov cycle and present a nice little cover to a possible sale.

Possible Trades to Analyze
1. Sell vol in Oct naked: Whether it be straddles or strangles, the vol is elevated. Covering the upside in this M&A happy environment could be wise with a vol sale.

2. Time spread the options, buy Nov and sell Oct, do it for a small vol credit and get the benefit of earnings in the Nov cycle (projected).

3. Trade the skew in Oct. A 43/45 call spread paying $0.50 or less actually pays lower vol than it sells in a call spread which is a nice trick.

4. Trade the skew and the calendar. An Oct/Nov 45 call spread (sell Oct/buy Nov) sells ~48 vol and purchases 42.5 vol with the benefit of earnings and theta working for the trade. A takeover turns this into an instant loser as long vega goes bye bye.

This is trade analysis, not a recommendation.

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Wednesday, October 6, 2010

Solarfun (SOLF) - Spec Call Buying Pushes Skew

SOLF is trading $12.07, up 4.1% with IV30™ up 12.7%. The LIVEVOL™ Pro Summary is below.

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On 9-30-2010, Jefferies Analyst Jesse Pichel raised his forecasts on the entire group - well above the consensus. That article is available by clicking here.

The company has traded over 17,000 options on total daily average option volume of just 2,365. All but 1,540 contracts have been calls. The action has been in the Oct 12 and 13 calls where over 14,000 contracts have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). Oct vol is up 20 points or 33% from the order flow. Nov is up ~10% or 6 vol points. We can also see that 11,000 Oct 13 calls have traded. My guess is it's to the buy side.

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

It's not unusual for solar companies to have a reverse skew, but the vols in Oct are whack. It's a straight line up with positive slope. To read why skew exists and what normal skew looks like you can go 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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

A couple things to note:
1. The Vol pop today, though it's significant, is still slightly below the long term realized HV180™ which is 74.

2. The stock has been stuck in a rut for the last month as evidenced by the HV20™ which is just 45, or 40% lower than the IV30™.

The Oct skew looks ridonculous (yes, it's a word... sort of...). For those that are inclined to get long this name through long options, a Nov 13 / Oct 14 call spread does purchase 69 vol and sell 84. For any call selling, try the offer (or near the offer) as the liquidity may provide for good selling prices. A bunch of other trades/spreads are on the board, depending on how (and if) you want to play the risky solar sector.

This is trade analysis, not a recommendation.

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Smithfield (SFD) - Calendar Spread Opportunity

SFD is trading $16.48, down 0.7% with IV30™ also down 1.8%. The LIVEVOL™ Pro Summary is below.

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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 >= $5
Sigma1 - Sigma2 <= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 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.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line). I've highlighted the ATM strikes.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see that IV30™ is trading above both the short-term realized vol (HV20™ is 28) and the longer-term realized (HV180™ is 37).

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

We can see that Oct vol is ~46 while Nov is ~37. This is the vol diff we're lookin' at.

Potential Trades to Analyze
1. Sell the Oct 16/17.5 strangle @0.35 or ~44.5 vol. Buy the Nov 16/17 strangle for $1.25 or ~40.5 vol. The total debit is $0.90. Note the "uneven" upside strikes allowing for a bit more upside room in Oct. The hope here is that SFD stays within [$16, $17] by Oct expo.

2. Do trade #1, if it works out well, then sell the Nov 15/18 strangle if possible at or above $0.45. That leaves a total debit of $0.45 for a max gain of $0.55 or a 1.22:1 MaxGain:MaxLoss ratio.

3. Other trades include selling more than 1:1 in Oct and Nov. Also, instead of buying the strangle in Nov, we can look at the 16 or 17 straddle for a slight delta bet along with the vol.

This is trade analysis, not a recommendation.

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