Range Resources (RRC) - Stock, Vol and Skew Pop on Takeover Spec... Again

RRC is trading $65.85, up 3.8% with IV30™ up 16.0%. The LIVEVOL® Pro Summary is below.



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Range Resources Corporation is an independent natural gas and oil company. The Company is engaged in the exploration, development and acquisition of primarily natural gas and oil properties, mostly in the Appalachian and Southwestern regions of the United States.

This is an order flow note based on some M&A spec but the result has been both elevated overall vol and a substantial upside skew in the front month.

The company has traded over 21,500 contracts on total daily average option volume of just 3,686. Calls have traded on a 9.6:1 ratio to puts with the action in the Oct 70 and 75 calls where over 11,000 contracts have traded. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Oct calls are mostly opening (compare OI to trade size). The trades look like substantially purchases, today. When looking down the entire option chain for RRC, I don't see any OI larger than 2,400, so both of the calls are showing very large interest.



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



The most notable phenomenon to me is the upside skew in Oct; and these aren't nickel bids. The Oct 85 calls are $0.40 x $0.75. Those calls are 30% OTM after today's 5% pop.

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).



On the stock side, we can see the pop today. On the vol side, we can see that the implied is now higher than both the short-term and long-term historical realized vols. Specifically:

IV30™: 52.83
HV20: 40.73
HV180: 42.67

Possible Trades to Analyze
Upside skew sales, calendars or general vol sales seem reasonable given the vol comps presented above. Obviously, bets on a takeover are the predominant order flow now, so...

This is trade analysis, not a recommendation.

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Rambus (RMBS) - Vol up 300%, Options Reflect Greater Upside Potential Than Down

RMBS is trading $13.35, up small with IV30™ up 1.0%. The LIVEVOL® Pro Summary is below.



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Rambus Inc. (Rambus) is a property and technology licensing company. The Company’s primary focus is the creation, design, development and licensing of patented innovations, technologies and architectures that are foundational to all digital electronics products and systems.

The IV30™ is now above 155. The news pushing this stock surrounds yet another law suit. Here's a quick snippet from Briefing:

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BWS Financial says RMBS shares have been running higher this week in anticipation of the closing arguments in the anti-trust case beginning on Monday. Firm says the speculation in the market is RMBS would reach some sort of settlement with Hynix Semiconductor and Micron Technology (MU). A settlement is probably the best course of action for all parties, they say. For RMBS, a settlement would mean the ability to see cash. Right now, even if the jury was to side with RMBS there is no timeline as to when RMBS would see any of the damages, the firm says.
Provided by Briefing.com (http://www.briefing.com/)
---

Let's actually start with the Options Tab (below) -- the pricing of the OTM options is extraordinary.



This is a $13 stock where the front month 7 strike puts are worth ~ $0.20 and the front 25 strike calls are worth ~$0.40. Whoa... Let's turn to the Skew Tab.



A couple of highly notable phenomena:
(1) The front month is elevated to the back -- the ATM vol diff is about 20 vol points. That crazy vol in the Nov 6 puts is simply due to a wide $0.08 x $0.47 market (vol priced to mid-market).

(2) The vol rises to the upside and it's essentially monotonic. In English, the option market reflects greater upside risk (potential) than downside. Putting numbers to it, the Oct 7 puts (which are $6.35 OTM) are worth ~$0.20. The Oct 20 calls (which are $6.65 OTM) are worth ~$0.82.

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).



Starting with the stock portion, check out the price drop on 5-13-2011. The news surrounding that move is well summarized by TheMotelyFool.com:

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Shares of computer memory technologist Rambus look like Rambo came by to slap them around today. At worst, the stock dropped more than 24% below Thursday's closing price after briefly posting a 12% gain.

This frenzy is fueled by an appeals court judge sending Rambus' patent infringement case against Micron Technology back to a lower court for reconsideration, based on Rambus shredding as much as 9 tons of documents possibly pertaining to the case.

Investors are left wondering exactly what Rambus wants to hide. The outcome of several other patent lawsuits may hinge on what happens to the Micron case, with cascading effects on the entire Rambus business model. Technology patents can be fertile grounds for serious business, as proven by Universal Display and TiVo, but Rambus runs a cloak-and-dagger version of that model where your investment lives and dies by the whims of a court.
Source: Rambus Shares Plunged: What You Need to Know, written by Anders Bylund.
---

On the vol side, check out that "event vol." IV30™ has popped from 38.57 (on 7-22-2011) to now 155.20; that's greater than a 300% gain in less than two months as the court date has arrived.

Possible Trades to Analyze
There are four ways to play this essentially.
(1) Bet on a large drop.
(2) Bet on a large pop.
(3) Bet on a large pop or a large drop (two-sided).
(4) Bet on a delay (or something) that kills vol in the front or a result that moves stock less than the options reflect.

With creativity, each of these allow for either vol sales or vol purchases or both, either in one month or several months. Ultimately, the question becomes: are the ATM options under/over priced relative to the OTM options?

I dunno, but if there's a settlement, would either company agree (read: settle) to "something" that would make RMBS go below $6 or above $25? It seems that if the stock moves that aggressively, it wouldn't be a settlement, but rather a ruling... Or not?... How long does a ruling take relative to a settlement?...

This is trade analysis, not a recommendation.

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Rockwell Collins (COL) - UTX Jumbo Financing Pushes Vol and Stock in Takeover Candidate

COL is trading $56.60, up 8.6% with IV30™ popping up 31.8%. The LIVEVOL® Pro Summary is below.



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Rockwell Collins, Inc. (Rockwell Collins) is engaged in the design, production and support of communications and aviation electronics for commercial and military customers worldwide.

The news pushing the stock and vol is this:

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SAN FRANCISCO (MarketWatch) -- Tyco International shares jumped 6% to top all S&P 500 advancers on Friday, rallying along with Ingersoll-Rand Co. Ltd. on a report that United Technologies is in the process of raising funds for a big acquisition. [...] The report also mentioned Rockwell Collins Inc., which helped push the stock up more than 4%.
Source: MarketWatch: Tyco, aerospace stocks jump on UTC takeover talk, written by Shawn Langlois.
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Takeover spec on what seems to be acquirer news. COL has traded over 8,500 contracts on total daily average option volume of just 435. Calls have traded on a 6.1:1 ratio to puts, with the action in the Oct 60 and 65 calls. 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) on the Oct 65 line; more ambiguous but some opening on the Oct 60 line. When looking down the entire option chain for COL (excluding Sep), I don't see any OI larger than 1,599, so both lines are trading quite large for this issue.



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



We can see a slightly parabolic skew in Oct -- those calls (60 and 65 strikes) are bid up to order flow. The vol diff that has opened up between those strikes when compared to the back month(s) is significant at ~17 vol points. Keep in mind, the last two earnings cycles for COL at this time of year were 11-3-2009 and 10-29-2010, so selling Oct would likely not be an earnings vol sale and owning the back would certainly own it.

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 stock ripping of late, up from a low of $45.45 on 9-6-2011 to now $56.60. That's 25% in 10 calendar days. On the vol side, we can see the implied has actually jumped as the stock has moved up. IV30™ was 38.79 on 9-6-2011 and is now 48.52. That's a 25% pop as well.

Possible Trades to Analyze
Selling the elevated Oct vol and owning the lower Jan'12 vol allows a vol scalp while owning earnings. The danger is doing it one-sided (especially to the upside) as stocks that pop on these rumors often times fall back down fairly quickly, leaving that long back option worth less than the debit of the calendar. The downside calendar does show a vol diff as well, though not as pronounced.

This is trade analysis, not a recommendation.

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Pre-Market: 9-16-2011

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Ralcop (RAH) - Fascinating Deadline Approaching, Vol... Low?...

RAH is trading $78.95, down small with IV30™ down 20.6%. The LIVEVOL® Pro Summary is below.



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Ralcorp Holdings, Inc. (Ralcorp) is engaged in manufacturing, distributing and marketing private-brand food products, Post brand ready-to-eat cereal products and other regional and value-brand food products in the grocery, mass merchandise, drugstore and foodservice channels.

This is a fascinating takeover story with a deadline fast approaching and billions on the line. I've taken some snippets from a Bloomberg article written by Tara Lachapelle and Jeffrey McCracken on 9-14-2011. You can read the full article here: Ralcorp Board Costing Investors $1 Billion in ConAgra Opposition: Real M&A

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Ralcorp plunged to $79.11 yesterday after ConAgra said it will withdraw the $94-a-share proposal if the cereal maker won’t start negotiations by Sept. 19. [...] While Ralcorp’s [...] goods may only be worth a combined $86 a share in an upcoming separation, ConAgra may be willing to pay $104 to secure a deal, said BMO Capital Markets.

[Congra...] is pushing for talks after St. Louis-based Ralcorp rejected its advances, adopted a poison pill and said splitting in two will “unlock significant value” for shareholders. ConAgra, which began its pursuit at $82 a share in March, is now valuing the biggest U.S. maker of store-brand foods at $7.3 billion including net debt. Ralcorp still fell 7.1 percent yesterday as traders who profit from mergers and acquisitions abandoned bets after pushing the stock as high as $90.51 in May.

“It’s put up or shut up time for Ralcorp,” Jack Russo, an analyst for Edward Jones & Co. in St. Louis, said in a telephone interview. “Clearly the board of directors at Ralcorp is under the gun. They may have to be more specific on how they’re going to take care of their own shareholders if they don’t accept an offer.”
---

The article goes on to describe how shareholders have called the board and how the "deal isn't dead." further, the article reads: "ConAgra said it’s only interested in acquiring the entire company and will pursue other opportunities if Ralcorp refuses to negotiate."

And if that's not enough, try this: "If ConAgra wants to keep its investment-grade credit rating, it’s probably capped at offering $100 a share [...] Alexia Howard, an analyst for Sanford C. Bernstein & Co. in New York, wrote in a Sept. 12 note to clients [...] [RAH] is rated Baa2 by Moody’s Investors Service and BBB by Standard & Poor’s."

Whoa...

Let's take a look at 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).



Check out the stock movements -- gaps up and down are common place. On the vol side we can see that the implied is now trading over the realized vol, but, yeah, for good reason -- Sep. 19 is fast approaching. You could potentially make an argument that Oct vol is too low... no? More on that when we get to the Options Tab.

Let's turn to the Skew Tab, below.



Two things really stand out to me: (1) The front month is super elevated with just 1.5 days to go in the expiration cycle. (2) The skews in the back are flat. Weird...

Finally, let's turn to the Options Tab.



Starting in Sep, the 75 strike puts are priced to 80 vol -- the one day puts are worth ~$0.40. The Sep 90 calls are priced to 130 vol with fair value of $0.20. Whoa...

Looking to Oct, the ATM straddle is worth $8.60, with the month priced to ~42 vol... 42 vol? Really? It feels like the option market reflects some ambiguity as to the finality of this Sep. 19 deadline. But, then again, the Dec options are priced to even lower vol than Oct.

Possible Trades to Analyze
I'll stay agnostic(ish) here... ok, no I won't... Selling that Oct vol feels... not as good as selling vol usually does... IMHO. But the again, I haven't been following this for more than, well, an hour.

This is trade analysis, not a recommendation.

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VirnetX Holding (VHC) - Elevated Implied, Dipping Historical and Earnings Vol

VHC is trading $21.41, down 3.0% with IV30™ down 5.2%. 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.

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.

The VHC 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 vs. HV10 - white).






We can see the stock drop in Summer and the “slow and steady” slight recovery of late. I call it “slow and steady” because we can see how the realized vol has decreased substantially. The HV10 hit as high as 256.17 and HV20 hit as high as 193.06. Those two measures are now down to 60.6 and 82.09, respectively – that’s the result of the equity price realized volatility dropping. During a similar period, IV30™ has gone from 151.31 down to 106.32.

In English, the implied has dipped less than the realized creating a vol difference and thus triggering the elevated vol signal from the custom scan. Specifcally:

IV30™: 106.32
HV20: 82.09
HV180: 95.24
HV10: 60.36

Let’s turn to the Skew Tab to examine line-by-line and month-to-month vol comps.



We can see the skew has a “normal” shape with the downside puts bid relative to the upside (and ATM). We can also see how the back month is elevated to Oct – that’s an earnings phenomenon as they are due out in the Nov options cycle.

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



The downside puts in Oct look like tasty sales given that they’re trading as high as 127 vol with the stock finding a “quiet period” of late. The 52 wk range in VHC is [$10.21, $41.77], although that low was hit more than 6 months ago. The recent low is $15.51 hit on 8-8-2011.

I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, given that this stock was ~$10 within the last year, selling the downside Oct puts naked might feel a little risky given the overall market sentiment. A calendar runs into trouble since the Nov options aren't out yet and earnings are due out in that cycle.

This is trade analysis, not a recommendation.

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Gold Resource (GORO) - Elevated Vol in a Hard to Borrow

GORO is trading $21.43, with IV30™ down 1.3%. The LIVEVOL® Pro Summary is included below.



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Gold Resource Corporation is engaged in the exploration for and production of gold and silver in Mexico.

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.

The GORO 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 stock has been headed straight down since early Aug when it hit as high as $28.45. As of this writing it's trading $21.43 or down 25% in a little over a month. The HV20 hit as high as 73.26 in Aug with IV30™ at 74.60. Of late, the stock has moved with lower realized vol (HV20 and HV20 are below 50), but the IV30™ has remained elevated. It's that vol diff that peaked my interest. Specifically:

IV30™: 72.91
HV20: 46.60
HV180: 54.71
HV10: 34.94

Let's turn to the Skew Tab, below.



We can see the downside skew in all three months has a steep slope while the Dec ATM are priced higher than the other two months (quite possibly due to earnings).

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



Check out those Oct 15 puts priced at ~86 vol or ~$0.30. Keep in mind, the 52 wk range for GORO underlying is [$17.23, $31.10], so $15 is ya know... lower...

Possible Trades to Analyze
1. Note the ATM combo prices stock at ~ $20.50 in Oct -- so this thing is hard to borrow, thus the expensive puts. An interesting trade that caught my eye was an Dec/Oct 17.5/15 1x2 put spread. Of course, if the stock goes back to $5 (did I mention this was a $5 stock less than 2 years ago?) that 1x2 will feel pretty... umm... bad...

This is trade analysis, not a recommendation.

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McMoRan Exploration (MMR) - Elevated Implied, Dipping Realized

MMR is trading $12.12, down 1.4% with IV30™ down 0.8%. The LIVEVOL™ Pro Summary is below.



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McMoRan Exploration Co. (McMoRan) 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.

The MMR 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).



Although the stock is down considerably over the last six months, the last month (ish) has been relatively quiet, with HV10 dipping to below 60. As the historical vols have dipped, the IV30™ has remained elevated. It’s that vol comp that got my attention. Specifically:

IV30™: 87.90
HV20: 72.67
HV180: 51.99
HV10: 59.63

We can also note that the 52 wk stock price range for MMR is [$10.98, $19.80].

Let’s turn to the Skew Tab, below.



We can see that the ATM vol in Sep is actually slightly depressed to Oct, while the parabolic skew in Sep pushes the OTM call and put vol well above Oct (which is normal this close to expo).

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



I wrote about this one for TheStreet.com(OptionsProfits), so no specific trade analysis here, but, that elevated implied in Oct looks juicy and taking the 52 wk low into account, perhaps some downside risk is reasonable with proper vol levels and risk controls.

This is trade analysis, not a recommendation.

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Interoil (IOC) - Calendar Vol Diff and Elevated Downside Put Vol to New Lows

IOC is trading $58.24, up 1.2% with IV30™ down 5.1%. The LIVEVOL™ Pro Summary is below.



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InterOil Corporation (InterOil) is an integrated energy company operating in Papua New Guinea and its surrounding Southwest Pacific region.

I found IOC using the month 1 to month 2 calendar spread custom scan. Normally a calendar with four days (or three and a half) to go to expo isn't the most interesting idea, but the vol in this bad boy is pretty cool.

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.

The IOC 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).



Most notably, to me at least, is that the IV30™ and short-term historical (HV20) kind of trend with each other, while of late, both are substantially higher than the long-term realized (HV180) trend.

We can see:
IV30™: 76.42
HV20: 71.28
HV180: 49.28

In English, the stock is moving with much greater volatility of late than it has in the long-term and the implied vol is pacing that more volatile movement.

Let's turn to the Skew Tab to examine the calendar spread vol diff.



Not only are the ATM options priced to higher vol in Sep vs Oct by ~12 vol points, but the parabolic skew in Sep reflects substantially elevated risk in those OTM options in Sep compared to Oct. It's the doomsday scenario that is still priced in -- as the end of the weeks have proven to be quite... well... dooms-day-ish...

Let's look to the Options Tab (below).



The thing that caught my attention the most are the downside puts in Sep. With the 52 wk range in stock price being [$47.29, $81.98], those three and a half day Sep 47.5 puts are still priced at ~ $0.30. That's 140 vol... Whoa...

Possible Trades to Analyze
Calendar spreads ATM, OTM and diagonal are on the board as are naked vol sales in Sep or dare I say, naked vol purchases?...

This is trade analysis, not a recommendation.

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Western Refining (WNR) - Elevated Vol and Skew Kink on Volatile Stock

WNR is trading $15.88, down 6.0% with IV30™ up 4.6% as of ~11:30am EST. The LIVEVOL™ Pro Summary is below.



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Western Refining, Inc. (WNR) is an independent crude oil refiner and marketer of refined products and also operates service stations and convenience stores. The Company operates in three segments: refining group, wholesale group, and retail group.

I found WNR today because of its elevated vol – specifically IV30™ compared to HV20 and HV180. Let’s start with the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see the large drop (~40%) off of the last earnings report. That drop in price created an HV20 that hit nearly 140%. Since then the stock has found a quieter range and the stock has moved at an HV20 now of ~69. The implied rose after the earnings report (rather than a vol crush), has dipped in the period following, but now has spiked, again, of late. It’s that rise in IV30™ as HV20 has dipped that caught my attention. Specifically:

We can see:
IV30™: 88.03
HV20: 69.53
HV180: 71.88

So, IV30™ is elevated relative to the short term and long term realized movement of the stock. Let’s turn to the Skew Tab.



This stock has a 52 wk range of [$4.74, $21.75], which is quite wide. With the stock down 6.0% today, the downside puts one strike OTM are still priced at over 100 vol while the Oct 15 puts are priced at 88 vol (or right on the IV30™). Other than that, the skew shape looks fairly normal. The Oct 14 puts are priced at higher vol than the Oct 13 puts as there is a small kink in the skew (down) on the Oct 13 line.

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



I wrote about this one for TheStreet.com (OptionsProfits) so no specific trade analysis here, but the elevated vol in the Sep 15 puts looks enticing. The problem of course is owning that vega in Oct means owning that elevated vol.

This is trade analysis, not a recommendation.

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