Risk Laboratory: Ophir Gottlieb

Thursday, April 7, 2011

American Superconductor (AMSC) - Vol Gaps Open on 50% Stock Collapse

AMCC is trading $14.40, down 0.5% with IV30™ down 1.2%. The LIVEVOL™ Pro Summary is below.

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American Superconductor Corporation is a power technology company offering a range of technologies and solutions spanning the electric power infrastructure from generation to delivery to end use

This stock gapped down 50% yesterday on a revenue guidance that included the rejection of a gigantic order. Here's the news:

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The wind-turbine components maker American Superconductor Corp. (AMSC) fell the most in two decades after its largest customer refused to accept a shipment and its stock was downgraded.

The stock slumped about 42 percent to $14.47 in Nasdaq Stock Market trading today, the biggest intra-day decline since it was listed in 1991. It fell as low as $12.54, down about 50 percent. The Devens, Massachusetts-based company said yesterday that it expected to report a net loss for the fiscal fourth- quarter after Sinovel Wind Group Co. refused to accept contracted shipments.
Source: Bloomberg, written by Randall Hackley and Marc Roca
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I wrote about this company on TheStreet.com, so no specific trade analysis here. The huge move yesterday has pushed the front month vol high and now the company shows up on the calendar spread custom scan I built -- 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.

Let's look to the Skew Tab.

Not only is the front month well elevated to the back but the front shows a parabolic skew -- so both the upside and downside calendar opens up further.

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 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).

We can see the stock's collapse yesterday as well as the IV30™ pop.

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

Without really delving into specifics, some sort of skew trade (intra-month) or calendar seems worth examining. Of course, the stock has just been cut in half, so the elevated vol reflects the risk that the stock can move fast and furious. Read: the month-to-month vol disparity isn't an accident.

This is trade analysis, not a recommendation.

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Hertz Global (HTZ) - Vol Pops on Call Trades into Earnings

HTZ is trading $16.11, up small with IV30™ up 9.4%. The LIVEVOL® Pro Summary is below.

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Hertz Global Holdings, Inc. (Hertz Holdings) is a worldwide airport general use car rental brand, operating from approximately 8,500 locations in 146 countries as of December 31, 2010.

The order flow in May (earnings month) is interesting and the corresponding vol jump made it worth a note, today.

The company has traded over 6,000 contracts on total daily average option volume of just 1,882. 0 (zero) puts have traded today -- the flow is just calls. The action is in the May 16 and May 17 kind, where essentially all the order flow is concentrated. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the May 17 calls are mostly opening (compare OI to trade size). The trades today feel long. The May 16 call OI looks to be short, but the trades today feel long (closing) as well (not sure as it printed on ISE with price variation, so it's nearly impossible to tell second hand). With the vol up nearly 10% in May, the circumstantial evidence confirms that the order flow is buying premium. Note that earnings are projected for the May cycle.

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

The skew shape is normal, with a slight bend up to the May 19 calls (nickel bid, but for size).

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 stock looks to be generally trending up. The jump in the IV30™ today has pushed it to the long-term realized vol average (HV180) and now well above the short-term realized vol (HV20).

Possible Trades to Analyze
I can't find any kinks in the skew or any really interesting vol trades to examine. Paying $0.10 in the May 18/19 call spread seems like an interesting 9:1 MaxGain:MaxLoss bet, but getting those prices will be tough and it's really just a lottery ticket more than a skew trade.

Keeping an eye on this one could be worth the time -- put it in a watchlist in LVP with an IV30™ and stock price alert (both set to be higher). If the flow continues and the stock rises with vol, maybe a skew trade opens up.

This is trade analysis, not a recommendation.

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Wednesday, April 6, 2011

Comerica (CMA) - Call Buyer Ahead of Earnings Cycle

CMA is trading $37.23, up 0.6% with IV30™ up 2.6%. The LIVEVOL™ Pro Summary is below.

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Comerica Incorporated (Comerica) is a financial services company. The Company operates in four segments: the Business Bank, the Retail Bank, Wealth & Institutional Management and the Finance Division

The company has traded just under 15,000 contracts on total daily average option volume of just 3,435. Calls have traded on a 9:1 ratio to puts with the action in Apr 38 kind, where more than 12,000 contracts have changed hands. What's odd is that earnings are due out after Apr expires. 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). When looking down the entire option chain for CMA, I don't see any OI larger than 4,000, so this size is large for this stock. The trades look like substantially purchases to me based on prices and the vol increase is confirming circumstantial evidence.

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

What's odd is that the skew doesn't really show a change in shape. In fact, while the downside vol in Apr is above May, the upside in Apr is lower than May even though the order flow is in the Apr upside. I do note that earnings are due out in the May cycle (after Apr expo).

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).

Just as the skew shows very little obvious opportunity to spread, the IV30™ is essentially dead middle in between the HV20 and HV180. In English, other than the one-sided order flow, I don't see any clear vol discrepancies to trade.

This is trade analysis, not a recommendation.

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VirnetX (VHC) - Wild Ride in Technology Patents

VHC is trading $25.26, down 8.1% with IV30™ up 0.4%. The LIVEVOL™ Pro Summary is below.

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VirnetX Holding Corporation (VirnetX) is a development-stage company. The Company is engaged in developing and commercializing software and technology solutions for securing real-time communications over the Internet. The Company is focused commercializing a patent portfolio for securing real-time communications over the Internet.

The stock popped yesterday,so today's dip should be taken in context. On 3-30-2011 there was some big news:

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VHC today announced that it has been granted U.S. Patent No. 7,921,211... seeking to add allegations that all of the defendants in its two currently-pending patent infringement lawsuits, VirnetX Inc. v. Cisco Systems, Inc., Apple Inc., Aastra USA, Inc., Aastra Technologies Ltd., NEC Corporation, and NEC Corporation of America and VirnetX Inc. v. Mitel Networks Corporation, Mitel Networks, Inc., Siemens Enterprise Communications GmbH & Co. KG, and Siemens Enterprise Communications, Inc. infringe this new patent.

VirnetX also added allegations that Apple's iPad 2 infringes its patents. VirnetX now accuses the following Apple products of patent infringement: iPhone, iPhone 3G, iPhone 3GS, iPhone 4, iPod Touch, iPad, and iPad 2.

VirnetX Awarded New Patent, Included in Current Infringement Lawsuits, from PR Newswire.
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The company has traded over 15,000 contracts on total daily average option volume of just 3,845. Calls have traded on 1.6:1 ratio, which is actually below the daily average of 3.2:1. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action -- sort of rapid fire all over the front month. It's interesting that vol is essentially unched with stock moving this much -- this could indicate that buying and selling of option premium is about even.

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

Although the skew is rickety, it has maintained a generally "normal" shape, with the possible exception of an upside call vol increase (ish). I do note that the front month is substantially elevated to the second while earnings are in the back month. The option market is reflecting a lot of risk in this stock, including the very near-term.

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 first thing that jumps out at me is the stock move. It looks like it's up over 100% in the last month. In the vol portion (bottom), we can see that the IV30™ has risen with the stock and has actually outpaced the realized vol.

Possible Trades to Analyze
This one feels really risky. From the news that I've read, the only real thing I discovered is that I haven't discovered anything. Seems like there's a ton to know about the potential news/announcements and that info can't be found easily. I'd be cautious of the calendar -- that could blow up pretty bad on a huge stock move and/or a vega crush. This is just a really interesting stock to have on the radar, IMHO.

This is trade analysis, not a recommendation.

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Tuesday, April 5, 2011

Best Buy (BBY) - Calendar to OTM Calls Opens Up

BBY is trading $28.69, up 1.9% with IV30™ unched. The LIVEVOL® Pro Summary is below.

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Best Buy Co., Inc. is a multinational retailer of consumer electronics, home office products, entertainment software, appliances and related services.

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.

We can see the front month is elevated to the back. More interesting to me is the upside skew -- the vol difference opens up even more to the OTM calls yielding some interesting calendar spreads worth examining.

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 vol looks right about smack in the middle fair value. The most noticeable part of the charts tab is in the equity movement -- BBY catapulted down on the last earnings release going from $41.70 to $35.52. BBY's next earnings cycle is likely in June, so this isn't one of those extra "special" calendars where an earnings month has lower vol than the front.

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

Potential Trades to Analyze
Without getting into specifics, it looks like any kind of calendar spread (either diagonal or plain vanilla) looks like it's worth examining given the vol difference that opens up to the OTM calls month-to-month.

The overall vol level in both Apr and May seems fairish -- it's really the vol difference that caught my attention.

This is trade analysis, not a recommendation.

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XL Capital (XL) - Vol up, Stock Up, Earnings Calendar Up

XL is trading $25.17, up 0.7% with IV30™ up 6.7%. The LIVEVOL® Pro Summary is below.

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XL Group plc (XL) through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and, professional firms, insurance companies and other enterprises on a worldwide basis.

This one has some interesting order flow and a skew difference month to month.

The company has traded nearly 11,000 contracts on total daily average option volume of just 3,235. All but 208 contracts have been calls yielding a 51:1 call:put ratio. The action has been in the Apr 26 calls where over 6,600 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Apr 26 calls are mostly opening (compare OI to trade size). The trades look like substantially purchases. Note that the next earnings release is due out on May 3rd.

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

It's the upside skew the caught my attention. The ATM vol in May is above Apr (yellow is above red in the middle) as it should be given that earnings are due out in the May cycle. But, to the upside, the order flow has pushed the Apr 26, and most notably the Apr 27 call vol up above May. Hmmm...

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).

We can see the IV30™ is elevated to the historical as the order flow has pushed the option prices higher. At the same time the stock has been pushing up.

Possible Trades to Analyze
1. Calendar spread the upside
With earnings due out in May and upside vol in Apr more expensive than May, an interesting trade to examine is owning that earnings vol for less than Apr.
Buy the Apr/May 27 call spread for $0.31.

2. Skew spread Apr
The 27 call vol also presents an interesting trade to examine intra-month.
Buy the Apr 26/27 call spread for $0.15 and sell higher vol than is purchased in a call spread.

3. Sell elevated front month vol.
The front month ATM vol is ~28.5. With HV20 and HV180 at 25.14 and 25.99 respectively, it could be worth analyzing selling that vol.

This is trade analysis, not a recommendation.

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Friday, April 1, 2011

EnerNOC (ENOC) - Calendar Spread to Own Earnings

ENOC is trading $19.05, down small with IV30™ down 1.3%. The LIVEVOL® Pro Summary is below.

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EnerNOC, Inc. (EnerNOC) is a provider of clean and intelligent energy solutions, which include demand response services, energy efficiency, or monitoring-based commissioning, services, energy procurement services and emissions tracking and trading support services.

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.

We can see how the front month is elevated to the back. One oddity -- the last earnings cycle was 2-16-2011, which would mean earnings are likely due out in mid May. This year, the May cycle ends on May 21st (the latest possible). Last year, earnings were 5-5-2010. So, it seems like the earnings month (with an embedded vol event) is cheaper (in terms of vol) than Apr. 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 stock has been headed down of late -- from as high as ~$31.50 before last earnings to now below $20.

On the vol side, IV30™ looks pretty fair(ish). Specifically:

IV30™: 68.43
HV20™: 74.29
HV180™: 50.73

But, note that Apr vol is actually 76.52. Given that Apr vol is well above May (with earnings), and is also above both the short-term and long-term realized vols, it's pretty clear that the option market reflects elevated risk in the near-term.

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

Potential Trades to Analyze
1. Calendar spread Apr/May:
a. Sell the Apr 20 strangle / purchase the May 20 strangle.
b. Do it one-sided: Just calls or just puts.

Both of these trades own the earnings vol for less than the front month. But, again, the elevated vol in Apr could reflect some embedded large news. Just to be clear, the elevated Apr vol needs to be investigated further than I went in this post.

This is trade analysis, not a recommendation.

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Avalon rare Metals (AVL) - Fascinating Order Flow into Earnings

AVL is trading $8.41, up 4.0% with IV30™ up 11.6%. The LIVEVOL® Pro Summary is below.

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Avalon Rare Metals Inc. (Avalon) is a Canada-based mineral exploration and development company. The Company’s primary focus is on rare metals and minerals, including tin, lithium, tantalum, niobium, cesium, indium, gallium, zirconium and calcium feldspar.

This is a little guy. I called IR and spoke with a lovely lady. Apparently they don't even release earnings through the press -- the just file the requisite docs with the SEC/Edgar and then a few days later post it on the website. Their next financials are due out just around Apr expo (~Apr 16). Check out this order flow in both options and stock.

The company has traded ~6,500 contracts in the first 1,5 hours on total daily average option volume of just 1,822. All but 254 contracts have been calls, yielding a 24.7:1 call:put ratio. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. Over 3,500 Apr 9 calls have traded -- they look like purchases to me. The existing OI of 2,707 has been accumulated over the last couple of days from ~800, to now over 2,700, and soon to be in the ~6,000 range (if it's all the same side). The other action is in the May 10 calls where 724 contracts have traded on 0 (zero) OI. Those trades look to be buyer initiated as well also (just an educated guess).

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

We can see the front month vol is well elevated above the second month reflecting some sort of volatility event (likely the earnings filing) in the Apr cycle. Also, check out the vol difference between the Apr and May upsides -- the skew in Apr is bid to the upside while May is bumpy but flat. The Apr 10 line is bid likely b/c of the order flow. Price discovery doesn't feel complete in the skew -- it should (or could) even out. Interesting...

Finally, the Charts Tab (less than 3 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

There's not a lot of history here, so take from it what you will.

Possible Trades to Analyze
The stock volume is already nearly 180% of the average. There is a possibility that the call buyers are selling stock, which is just turning a call into a put. If that's the case, then the trades are likely hedges (or bearish). But... the stock is up on high volume, so it doesn't feel like stock sellers are outpacing buyers at all.

1. Trade the Apr/May upside skew
a. The Apr/May 10 call spread for $0.30 sells ~ 15 vol points higher than it purchases.

b. Something similar, but also bet with deltas:
The Apr/May 10/9 call spread for $0.50 sells ~90 vol, purchases ~77 vol and gets long deltas as well. If there's a stock pop well through the strikes, the long deltas yield a profit.

2. Beyond trades, it's just fun to watch this one.

DISCLOSURE: As of ~12:30pm EST I bought some calls very small in Apr.

This is trade analysis, not a recommendation.

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