Thursday, August 25, 2011

Liz Claiborne (LIZ) - Call Buyers... Again...

LIZ is trading $4.46, up 3.6% with IV30™ down 3.4%. The LIVEVOL® Pro Summary is below.



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Liz Claiborne, Inc. (Liz Claiborne) designs and markets a portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX.

This is an order flow note that has lead me to a trade. Let’s start with some option volume details. The company has traded 4,255 contracts on total daily average option volume of just 1,344. Every option has been calls; i.e. no puts have traded. The largest trade was a purchase of Sep 5 calls ~4000x for $0.20 (the trade broke into a 2,300 lot print and then several hundred+ prints). 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). But check out the OI in the Oct 6 calls; it’s over 16,000. I see some very active days where that OI popped several thousand on 7-15-2011 and 7-27-2011. Both of those OI rise days look like opening purchases. My best guess is the Oct 6 call OI is long and accumulated over the last month (ish).



Let’s turn to the Skew Tab snap (below) to examine the vols by strike by month.



We can see the skew between the four and five strikes for both months is essentially flat. Sep is elevated to Oct by about six vol points. Oddly, the vol dips to the Oct six calls, which is “normal” skew shape, but abnormal given the order flow in my opinion.

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).



Check out the massively volatile stock price, coming from as high as $6.74 on 8-1-2011 to now below $4.50 in less than four weeks. We can also see the stock hit a bottom on 8-19-2011 of $4.02, and has since recovered (a bit). That price action includes a gap up on earnings. Hmmm…

I wrote about this one for TheStreet.com (Options Profits), so no specific trade analysis here, but, the order flow in this one is compelling, and the stock drop but recent recovery makes the ~$4 level feel safe(ish); like it would take a catastrophe to push the stock to say $3. This is when the stock dips to $1 and I feel stupid...

This is trade analysis, not a recommendation.

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Wednesday, August 24, 2011

Computer Sciences (CSC) - Calendar Spread and Skew Kinks

CSC is trading $29.14, up 0.4% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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Computer Sciences Corporation (CSC) is engaged in the information technology (IT) and professional services industry.

Today CSC came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. For the first time in a while, we'll look at a non-financial, non crazy vol, non-Chinese stock. Just a plain vanilla techy, that has some interesting term-structure vol.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry != 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 start with the Skew Tab.



We can see the vol diff between the front two months. In particular, there's a little kink up in the Sep 32.5 calls corresponding with a little kink down in the Oct 32.5 calls. The company last reported earnings this month, so as far as i can tell, there should be no earnings vol in either of these expos.

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 gapped down a couple times. Once on 5-3-2011 and then again on 5-26-2011, the latter was off of an earnings report. On 5-2-2011, this was a $51 stock. Today, it's trading in the high 20's.

On the vol side, we can see the elevated recent movement (realized vol). The implied has traded up with the realized volatility, but is still priced in between the short-term and long-term HVs. It is worthy to note that before the most recent earnings release, the HV20 was ~20 -- so very low vol relative to both the IV30™ and HV180.

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



Potential Trades to Analyze
Without getting too fancy, here are a few sort of plain vanilla calendar spreads to examine.

1. Sep/Oct call side
The 32.5 line vol diff between Sep and Oct is ~11.5 vol points.

2. Sep/Oct put side
The 27.5 or 25 line vol diffs are ~7 vol points.

3. Sep/Oct ATM
For a position that bets on the HV20 returning to the low 20's, an ATM or slightly OTM calendar (straddle or strangle) is a reasonable position to analyze.

This is trade analysis, not a recommendation.

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US Banks - Are They Collapsing?

I posted this to TheStreet.com a few days ago, thought it might be an interesting perspective. It's a continuation, or expansion really, of a few posts I wrote on BAC and USB.

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Source: TheStreet.com (OptionsProfits)

Let’s talk about banks. Not loans, and mortgages, ATMs and tellers, ‘n stuff. Let’s talk about the possibility of catastrophic failure – the possibility that banks return to levels not seen in three years. Not seen in 15 years. Maybe, not seen ever.

Why? Is it because I think that’s gonna happen? No. It’s because the market is starting to price that possibility – and I don’t mean by year end, I mean in, in some cases, within a few weeks.

Let’s start with a composite stock chart of BAC (red), WFC (blue), C (yellow), JPM (green) and a wall street darling, USB (orange).



We can see that BAC and C are performing the worst. I wrote a fairly detailed article about BAC on 8-9-2011, where I demonstrated, through some back of the envelope math, that the market was essentially pricing a 1/7 chance that BAC stock goes worthless by Jan 2012. But as we can see in the chart above, I was picking the worst performing company in a poorly performing and fear drenched industry. Just rattling the cages, right?

Ok, let’s take the opposite approach and look at USB. The best performing of the group, almost unched over the last two years. There was an interesting article through the New York Post praising USB’s CEO, Richard Davis. The article is titled, “Small bank giant: US Bancorp outperforms all Wall St. titans,” and can be read in entirety here: http://www.nypost.com/p/news/business/small_bank_giant_VSJyWihVurt0nyScPwSarJ#ixzz1Vm9eoPuJ

Here are some snippets:
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Forget JPMorgan Chase’s Jamie Dimon. Wall Street has a new golden boy: US Bancorp’s Richard Davis.

At a harrowing time for financial firms, when most banks find themselves battered and bloodied due to a raft of new regulatory changes under Dodd-Frank and an economy on the brink of a second recession, Davis’ bank is separating itself from the pack.

Indeed, net income in the second quarter for the Minneapolis-based bank was up 57 percent to $1.2 billion, compared to $766 million in the same period a year ago.

And so far the bank, which is the fifth largest in the nation, is No. 1 in terms of performance, or return on equity -- one measure of performance.
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Cool, that bank is doing well. No worries there, right? Let’s start with some options analysis. First, the Livevol® Pro Symbol Summary. USB is trading $20.80, up 1.2% with IV30™ down 7.6% today.

Now, let’s turn to the Skew Tab.



We can see a rather pretty skew shape for both months -- consistent and smooth. I don't like either of those adjectives when looking for a skew trade, but that's what we got. Obviously, the front is elevated to the back (red line is above the yellow line).

I believe the next earnings cycle for USB will be after the Oct cycle (i.e. in Nov), so owning Oct doesn't own an earnings report. For what it's worth, the Dec cycle is priced below both Sep and Oct (in terms of vol) for you vega buyers out there. The point here, the skew is not crazy out of line to the downside (or upside) – everything looks “nice and neat.” Even, “orderly.” Orderly…

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).



We can see the almost obligatory stock drop, vol spike and implied trading below short-term realized vol. This is how a number of stocks look right now on the vol side. So far, nothing looks too worrisome – it’s a down market, no big deal…

But, here's where it gets a little more interesting -- if for nothing else, from a market sentiment point of view. Let's start with the Options Tab (below).



Note the 15 strike puts in Sep. Those are priced at ~87 vol, or ~$0.16 fair value. And why does that matter? Well, the 52 wk range in USB is [$20.15, $28.66]. Keep in mind, those Sep 15 puts are winners to the longs on expo "iff" USB stock dips to $14.84. Yeah, that's a lot lower than the 52 wk low. In fact, USB hasn't been below $20 in more than 2 years. I've included a long-term stock chart for USB from Yahoo! finance, below.



I've drawn a line at $15. The only time USB breached that level was at market bottom in 2009. Before that, it was September... of 1997...

So we have the best performing bank of the big five, with a newly touted “Golden Boy” CEO (granted, he hasn’t appointed himself, so let’s not pile on him for something he had nothing to do with). And even in this stock, the options are pricing a realistic possibility that the stock his 2.5 year and maybe even 15 year lows… by September 16th.

The point is, the financial companies, banks in particular, have near-term options priced for a legitimate possibility (or fear) of a drop akin to the 2009 massive market bottom -- which in some cases were bank stock levels in the late 90's.

So is the sky falling? I dunno – you tell me. For those that are willing to bet that it isn’t (at least in the next four weeks), “normal" calendar spreads (for example) are on the board with the possibility of adding naked short puts at levels like... well, like $15 for USB.

What about the worst performing of the group, BAC? The Sep 3 puts are priced at $0.07 x $0.08. When was the last time BAC traded at $3. Drum roll please…

… Never.

Is it possible that it will? Yeah, it is, and the option markets reflect those odds in absolute terms. Just out of curiosity, if the sky really does fall, what do we see when we look up?

This is trade analysis, not a recommendation.

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Tuesday, August 23, 2011

AsiaInfo (ASIA) - Exploding Vol, Dropping Stock, Stock Halt Risk

ASIA is trading $9.19, up 5.2% with IV30™ up 3.2%. The LIVEVOL® Pro Summary is below.



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AsiaInfo-Linkage, Inc. (AsiaInfo-Linkage), formerly AsiaInfo Holdings, Inc., is a provider of telecommunications software solutions and information technology products and services in China.

The stock is down over 35% since 8-3-2011 (so 20 calendar days) with a poorly received earnings report on 8-4-2011 AMC. After earnings, the stock has continued to drop dramatically. Here's a nice summary from The Motley Fool on 8-12-2011:

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What: A week after plunging as much as 25% on disappointing guidance, shares of AsiaInfo-Linkage fell as much as 16% in early trading and stayed down much of the day, closing off 13.7%.

So what: It's hard to say exactly what spurred the selloff, but it's worth noting that, over the past quarter, AsiaInfo-Linkage had become a favorite buy among institutional investors seeking Chinese names. Perhaps poor guidance has enticed Big Money managers to flee the stock?
Source: AsiaInfo-Linkage Shares Plunged: What You Need to Know, by Tim Beyers.
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Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



The stock was as high as $22.91 in early April, so it's down ~60% in four and a half months. But check out the vol chart! Specifically:

IV30™: 274.11
HV20: 118.42
HV180: 59.70

The Sep ATM options are priced at ~290 vol. Putting that into actual dollars -- the Sep ( straddle has fair value of ~$5.20, or ~57% of the stock value for options expiring in a few weeks.


Let's turn to the Skew Tab snap (below) to examine the vols by strike by month.



While the vol is extraordinarily elevated, the skew shape itself is quite normal. There aren't any weird kinks or even parabolic skews. The downside is bid relative to the upside, and the term structure is monotonically increasing from the back to the front.

Finally, let's turn to the Options Tab, for completeness.



Possible Trades to Analyze
This one is wrapped up in so many risks it's hard to really take a position. A few things that I do note:

- The Sep 4 puts are priced to over 350 vol.
- The Sep 4/5 1x2 (buy 1 Sep put and sell 2 Sep 4 puts) can be done for a credit (I think). That would be safe to under $3.00 in stock by Sep expo.
- This is a Chinese stock with some serious risk -- it has happened before (ad may happen again) where the stock is halted over multiple option expirations and exercise decisions become quite a task; especially if you have short options as well, given that getting exercised on is random.

This is trade analysis, not a recommendation.

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Silver Metals (SVM) - Elevated Vol, Parabolic Skew and Double Systematic Risk

SVM is trading $8.35, down 4.1% with IV30™ up 3.2%. The LIVEVOL® Pro Summary is below.







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Silvercorp Metals Inc. (Silvercorp) is engaged in the acquisition, exploration, development and mining of high-grade silver-related mineral properties in China and Canada. Silvercorp is the primary silver producer in China through the operation of the four silver-lead-zinc mines at the Ying Mining Camp in the Henan Province of China.



I found this stock using the real-time custom scan that searches for high vols.



Custom Scan Details

Stock Price GTE $7 and LTE $70

IV30™ - HV20 LTE 10

HV180 - IV30™ LTE -8

Average Option Volume GTE 1,200

Industry isNot Bio-tech

Days After Earnings GTE 10 and LTE 60



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.



Let’s start with SVM Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).







We can see:

IV30™: 99.24

HV20: 76.21

HV180: 59.92



So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. The HV10 is 58.38, so the stock has actually moved with less volatility in the very recent term. On the stock side, we can see the price drop off of earnings from $10.40 to $8.95 or ~14%.



Let’s turn to the Skew Tab.







The front month shows a parabolic shape while Oct is sort of “normal.” That skew shape difference opens up some calendar spread opportunities in the OTM calls and puts between Sep and Oct.



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







Possible Trades to Analyze

I wrote about this one for TheStreet.com (Options Profits), so no specific trade analysis. I will say that there are a bunch of interesting trades to examine here.



The risk in this company does feel two-fold though, from a purely systematic point of view. Is it possible this stock dips (and vol rises) if the US market free falls? Is it also possible this stock dips and vol rises if there's some more accounting scandals with other Chinese companies? If you believe both are yes, that could mean double the risk (or whatever) -- and that means vol should be elevated.



This is trade analysis, not a recommendation.



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Monday, August 22, 2011

Lender Processing Services (LPS) - Elevated Vol to Annual Low

LPS is trading $17.54, up 2.6% with IV30™ down 6.0%. The LIVEVOL® Pro Summary is below.



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Lender Processing Services, Inc. (LPS) is a provider of integrated technology and services to the mortgage lending industry, with mortgage processing and default management services in the United States.

Last time I wrote about this company (on 6-6-2011), IV30™ was trading at ~57 and I noted how high the vol was in the front month relative to the second. Today, I found this stock using the real-time custom scan that hunts for high vols relative to the short-term and long-term historical measures.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

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.

Let's start with the Skew Tab.



We can see a smooth, normal looking skew, with the downside and upside front month vols elevated to the back. Oddly, the ATM vol in Oct is actually higher than the vol in Sep. But the story here is really in the overall vol chart.

The LPS 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).



We can see:
IV30™: 84.18
HV20: 59.96
HV180: 36.77
HV10: 81.29

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock, unlike a number of other companies we've looked at together where the implied has popped, but not to the same level as the short-term realized movement. I do note that the shortest term measure of HV (HV10) is the highest (and thus the closest to the IV30™). In English, the 30-day implied has been trading closest to the 10-day realized, of late.  The next earnings release should be after the Oct cycle (ish), so this is likely not earnings related.

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



Possible Trades to Analyze
1. ATM covered front vol sale
An interesting trade to analyze, sort of plain vanilla, is a sale of ATM vol (either straddle or one-sided) and covering with the wings.

2. OTM covered front vol sale
Another approach is to dabble in the wings, particularly the downside where the skew does bend up to the OTM puts.  Covering with a further OTM option protects the position (limits loss).

3. Uncovered front OTM vol sale
The 52 wk range for LPS is [$15.57, 34.75], like most of the market, this stock is trading much closer to it's annual low than high (the low was made on 8-8-2011, so a few weeks ago). A sale of the OTM puts (14 or 15 strike) has limited downside by virtue of the realities of stock -- it can't go below $0 and is interesting to examine.

This is trade analysis, not a recommendation.

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U.S. Bancorp (USB) - The Market Prices... Disaster?

USB is trading $20.80, up 1.2% with IV30™ down 7.6%. The LIVEVOL® Pro Summary is below.



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U.S. Bancorp is a multi-state financial services holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange and trust and investment management services.

The elevated vol in the market is obviously affecting the vast majority of individual stocks, but the financial industry is one of particular interest to me as the "fear" of catastrophic failures still looms. For those interested in the note I posted on BAC, you can go here:
Bank of America (BAC) - The Odds of the Largest Bankruptcy... Ever...


Today USB came up on a real-time custom scan for calendar spreads between the front two months. As I looked it over, I noticed some interesting phenomena in the option chain beyond the calendar vol diff. Let's start simple and take a look at the other "stuff" after.

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 start with the Skew Tab (below).



We can see a rather pretty skew shape for both months -- consistent and smooth. I don't like either of those adjectives when looking for a skew trade, but that's what we got. Obviously, the front is elevated to the back (red line is above the yellow line). I believe the next earnings cycle for USB will be after the Oct cycle (i.e. in Nov), so owning Oct doesn't own an earnings report. For what it's worth, the Dec cycle is priced below both Sep and Oct (in terms of vol) for you vega buyers out there.

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).



We can see the almost obligatory stock drop, vol spike and implied trading below short-term realized vol. This is how a number of stocks look right now on the vol side. So far, this looks like a reasonable calendar spread to analyze, nothing really out of the ordinary other than, yeah, some nice vol diff.

Here's where it gets a little more interesting -- if for nothing else, from a market sentiment point of view. Let's start with the Options Tab (below).



Note the 15 strike puts in Sep. Those are priced at ~87 vol, or ~$0.16 fair value. And why does that matter? Well, the 52 wk range in USB is [$20.15, $28.66]. Keep in mind, those Sep 15 puts are winners to the longs on expo "iff" USB stock dips to $14.85. Yeah, that's a lot lower than the 52 wk low. In fact, USB hasn't been below $20 in more than 2 years. I've included a long-term stock chart for USB from Yahoo! finance, below.



Potential Trades to Analyze
I've drawn a line at $15. The only time USB breached that level was at market bottom in 2009. Before that, it was September... of 1997... The financial companies, banks in particular, have near-term options priced for a legitimate possibility (or fear) of a drop akin to the 2009 massive market bottom -- which were bank stock levels in the late 90's.

Why does that matter? Well, for those that are willing to bet against that type of stock market drop, "normal" calendar spreads are on the board with the possibility of adding naked short puts at levels like... well, like $15 for USB.

I always say it, but I want to emphasize this time:
This is trade analysis, not a recommendation.

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Friday, August 19, 2011

Rubicon Technology (RBCN) - Elevated Vol That Doesn't Mirror the Market Pattern

RBCN is trading $12.43, down 2.9% with IV30™ up 3.9%. The LIVEVOL® Pro Summary is below.



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Rubicon Technology, Inc. (Rubicon) is an electronic materials provider, which develops, manufactures and sells monocrystalline sapphire and other crystalline products for light-emitting diodes (LEDs), radio frequency integrated circuits (RFICs), blue laser diodes, optoelectronics and other optical applications.

I found this stock using a real-time custom scan. This one hunts for high vols relative to the short-term and long-term hisorical realized vol. In this market, that's actually a unique set of phenomena.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

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.

The RBCN 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).



We can see:
IV30™: 97.38
HV20: 72.56
HV180: 53.47

To put the broader market in some perspective, I've included the same vol chart for SPY, below.



The vast majority of stocks I've looked at have this type of vol chart -- where the implied is substantially elevated to the recent past, but still also substantially depressed to the short-term realized. In English, most stocks I see have moved more than the implied has... well... implied...

Let's turn to the Skew Tab for the line-by-line and month-to-month vols.



We can see a pretty normal (ish) looking skew where the front is elevated to the back given the recent market action and the shape is bid to the OTM puts and decreasing from there to the higher strikes.

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



Possible Trades to Analyze
1. If looking for some vol to sell, the Sep 12.5 straddle covered with the Sep 11/14 strangle has an interesting payout if prices are good (i.e. if there's any liquidity inside the NBBO).

2. One sided vol sales either naked or with cover also seem reasonable to analyze. Nothing jumps out as obvious by strike, but there is some juicy juice, here. Then again, most other stocks have shown that the juicy juice has been too low... so...

And yeah, I called it juicy juice... It's Friday, cut me some slack... :-p

This is trade analysis, not a recommendation.

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Hess Corporation (HES) - Calendar with Two Twists

HES is trading $55.77, up 0.3% with IV30™ down 1.2%. The LIVEVOL® Pro Summary is below.



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Hess Corporation (Hess) is a global integrated energy company that operates in two segments: Exploration and Production (E&P), and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the second and third months. But, there's an interesting twist to this one... two twists, actually...

Custom Scan Details
Stock Price GTE $5
Sigma2 - Sigma3 GTE 7
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 and LTE 50
Sigma2, Sigma3 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 third months that are cheaper than the second month by at least 7 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 second month (yellow line) relative to the third month (green line).



Twist #1: Check out the elevated vol in the options expiring today. In particular, that Aug 55 put vol at ~ 85 yields a put that's worth ~$0.40 to fair value but is $0.77 OTM with five hours left in this expiration cycle. Ooo...

Twist #2: HES's last released earnings on 7-27-2011; the last two years the next earnings cycle was 10-27-2010 and 10-28-2009... So?... Well, that means earnings are due out this year in the Nov cycle -- yeah, that green line. In other words, the month two to three calendar owns earnings vol for less than it sells "non-earnings" vol.

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).



It really is remarkable how every stock chart looks the same right now... ok, every is an overstatement, but ya know what I mean... The vol portion looks similar to the rest of the market as well -- the implied has popped, but not as much as the underlying has moved in the last 10 and/or 20 trading days. Specifically:

IV30™: 55.67
HV20: 63.23
HV10: 84.75
HV180: 35.87

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



Note the vol diff in teh three expiration cycles (including Aug):
Aug: 83.83
Sep: 56.26
Nov: 47.92

Potential Trades to Analyze
1. Vanilla calendar:
Spreading Sep to Nov, owning the vega in Nov protected by an earnings release seems like a reasonable position to analyze. The short gamma is a noteworthy risk here, as, obviously, stocks are moving.

2. Not a vanilla calendar
Trade #1 with a sale of the Aug 55 vol -- that's selling two legs against one long leg and gets super short the gamma (at least for a day). A slight alternative is to do a Aug/Nov spread, and then on close (or on Monday), sell the Sep options to re-up the calendar.

Just a reminder, I'm not kidding when I say the gamma risk right now is substantial. In my mind, 40 VIX isn't sustainable -- it's higher or lower, but it won't stay here. If that's the case (which it may not be), stocks are moving from here (in some direction).

This is trade analysis, not a recommendation.

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Pre-Market: 8-19-2011

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This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:
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