BP Plc (BP) - Is Reckoning Day Upon Us?

BP is trading $29.18, down 1.6% with IV30™ up 8.4%. The LIVEVOL™ Pro Summary is below.



Note that the stock is on the verge of touching it's 52 wk low. The stock stats are included (click to enlarge).



The two largest trades yesterday are bets that BP goes through that low and then some. The day's biggest trades snap is included (click to enlarge).



Trade Stats
Sell 10,000 Jan'12 25 calls @ $10.80
Buy 4,000 Jan'12 32.5 calls for $7.45
Buy 3,300 Jan'12 30 calls for $8.55
----
Buy 6,665 Aug 20 puts for $0.82
Sell 6,665 Aug 10 puts @ $0.12
---

The first is a call spread sale (which is a put spread purchase) on ratio. The PnL chart is included (click to enlarge).



At expiration, the max gain is below $25 for nearly $5,000,000. If the stock rallies to it's high of the year ($62.38) it loses $9,744,100.

The second is a straight put spread purchase betting the stock goes below $20. Both bets look for the stock well below it's year low.

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



It actually has a very pretty skew. What's odd is that the back months (Jan '11 and Jan '12) maintain the shape pretty well. Usually back months show much flatter skews.

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



A picture's worth 1,000 words. You can see the "line in the sand." Is BP going to fall apart (further)? In the short term, it seems like reckoning day will be soon upon us.

The IV30™ 52 wk. range is [20.05, 117.27]. Note that while the stock is near it's low, the IV30™ is not near its high.

This is trade analysis, not a recommendation.

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Lennar (LEN) - Huge Bet to Upside on Down Swinging Stock

LEN is trading $14.66, up 3.2$ today with IV30™ down 0.8%. The LIVEVOL™ Pro Summary is below.



Earnings are reported tomorrow.

The company has traded over 41,000 options on total daily average option volume of just 12,422. The action in the Aug 14 puts (sales), Aug 17 calls and Nov 18 calls (both purchases) has accounted for over 31,000 contracts. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the calls (both Aug and Nov) are mostly opening (compare OI to trade size). The Aug 14 puts are ambiguous. I looked up the prior opening trades and I believe it to be short. The trades today should increase that OI.



Trade Stats (using averages)
Sell 10,000 Aug 14 puts @ $1.06
Buy 10,000 Aug 17 calls for $0.39
Buy 10,000 Nov 18 calls for $0.75
Debit = 10,000 * 100 *($0.39 + $0.75 - $1.06) = $80,000

On Nov Expo.
Break Even = $17.08

The 52 wk range is [$7.28 21.79].
The trades PnL ($7.28) = -$6,800,000 // on expo
The trades PnL ($21.79) = $8,500,000 // on expo

This is a huge bullish bet if unhedged. The avg daily stock volume is 7.3 million and only 5.2 million have traded thus far.

The PnL chart at Nov Expo is included (click to enlarge).



The Skew Tab snap (click to enlarge) illustrates the vols in the trade relative to each other, the other strikes and the other months.



The skew has maintained a fairly normal shape even with the trades buying upside and selling the downside.

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



You can see how the stock has fallen apart of recent, with IV30™ trading over HV20™. This bet gets super long.

This is trade analysis, not a recommendation.

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Textron (TXT) - Earnings Straddle Sale

TXT is trading 18.96, down 2% with IV30™ up 3.9%. The LIVEVOL™ Pro Summary is below.



The company has traded over 18,000 options in the first two hours on total daily average option volume of just 5,053. The largest trade, accounting for over 15,500 contracts, was an Aug 19 straddle sale in an earnings month. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the both the calls and puts are mostly opening (compare OI to trade size). You can also see that Aug vol is higher than the other months as it has earnings (projected), which is a vol event.



Trade Stats
Sell 7,812 Aug 19 calls @ $1.45
Sell 7,812 Aug 19 puts @ $1.35
Net Credit = 7,812 * 100 * ($1.45 + $1.35) = $1,132,741
The straddle makes money in the range ($16.30, $21.70) at expiration.

The 52 wk range for TXT is ($8.51, $25.30). Of course, this trade can make money with decay (or vol decline). My best guess is that this trade looks for the straddle to lose value in a quiet July (and thus time decay) and close the position before earnings ever come out. Why do I think this will be closed pre-earnings release? Hold that thought...

The Skew Tab snap (click to enlarge) illustrates that the Aug 19 vol (highlighted) is higher than the ATM for July and Sep (which makes sense due to earnings).



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



I've highlighted a few things. First, note that the IV30™ is below the HV20™ right now. More importantly, I've highlighted the last two earnings cycles on the stock chart. Note for both times, the stock moved hard (down the first time, second the last) and the vol may have been a purchase (IV30™ < HV20™). This is why I'm guessing (it's just that, a guess) the straddle could be closed pre-earnings.

This is trade analysis, not a recommendation.

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VXZ (VIX Mid-Term Futures) - Professional Betting on Market Downturn

VXZ (VIX Mid-Term Futures ETN) is trading 84.06. The LIVEVOL™ Pro Summary is below.



The ETN has traded exactly 20,000 options on total daily average option volume of just 472. All the contracts went up in a six legged put spread in July (zero calls have traded). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates which lines are trading. Note three of the lines are substantially opening (trade size >> OI). The 81, 85 and 89 puts are ambiguous (trade size = OI).



The 81/85/89 butterfly traded on 6-8-2010 (a bet that vol drops). I wrote about it in detail. VIX Mid-Term Futures (VXZ) - Butterly Bets on Vol Drop. Click the title to read it.

If we take the trades today together, I see this:
Buy 2,500 July 75 puts for $0.55
Buy 5000 July 77 puts for $1.00
Buy 2,500 July 80 puts for $2.05
Sell 2,500 July 81 puts @ $2.30
Sell 5,000 July 85 puts @ $4.30
Sell 2,500 July 89 puts @ $7.30

The position is easier to see in a PnL chart (at expo). Click to enlarge.



Basically, it's a fancy shmancy call spread purchase (put spread sale). Max loss is $2,250,00 and max gain is $5,500,000. A bet on the VXZ going up, is a bet that the market goes down.

The Skew Tab snap (click to enlarge) illustrates the vol by month by strike. You can see, it looks like a normal skew for this security.



Finally, the Charts Tab (6 months) is below (click to enlarge).



We can see the dip, then the rise and the recent "mid point drop." It looks like there is just the beginnings of a turn upward. Could be a blip, or could not...

This is trade analysis, not a recommendation.

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Frontier Communications (FTR) - 17,000:1 put:call ratio

FTR is trading 7.75, IV30™ is up 13.2% on some insane put action yielding a ~17,000:1 put:call ratio today. The LIVEVOL™ Pro Summary is below.



The company has traded over 83,000 options in the first hour on total daily average option volume of just 1,977. All but 5 (five) contracts have been puts. The largest trades have been 20,000 July 7.5/5 and Aug 7.5/5 put spread purchases totalling 80,000 contracts . The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the puts are mostly opening (compare OI to trade size). You can also see that July vol is above Aug even though earnings (projected) are in the Aug cycle (a vol event). The large OI in the Aug 7.5 puts is long (as far as I can tell). So these purchases today will push that OI into the 30,000 range.



The trade volume is enormous for this underlying. Note that other than the Aug 7.5 and July 7.5 puts, there isn't an OI above 1,900. Now there will be four lines at the 20,000+ level. The trade was executed as a spread inside the NBBO, so it feels negotiated and therefore could be delta neutral. The stock averages 4.8 million shares a day and has already done 3.2 million. The trade was done on ISE which is all electronic.

Finally, the Charts Tab (12 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



You can see the IV30™ (red line) jumping past the HV20™ (blue line) today. The 52 wk range is [$6.43, $8.57]. The PnL for the trades together at expo. is included (click to enlarge).



This feels like a hedge but the largest individual holder has just 950,000 shares, and then number two is 350,00. The put spread covers 4 million. There are three large institutional holders (mutual funds) with more than 10 million shares.

I believe there is a news report broken by Bloomberg that FTR is suing Google over some voice technology over the internet.

This is trade analysis, not a recommendation.

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Liberty Media (LINTA) - Call Buyer, Skew Holds, Stock Can Move

LINTA is trading 12.96, up 4.9% today with IV30™ down 8.4%. The LIVEVOL™ Pro Summary is below.



The company has traded over 5,000 options on total daily average option volume of just 497. All but 5 contracts have been calls. Essentially everything has been the Jul 12.5 calls (purchases). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size).



The Skew Tab snap (click to enlarge) illustrates the Jul 12.5 line relative to the rest of the chain. You can see that the skew is not/ has not adjusted. The 12.5 line is still well below the 10 strike. In fact, if you look to the largest trades of the day, the Jul 12.5 call purchases were negotiated inside the NBBO. It's possible these were done with stock (i.e. delta neutral). The stock has traded 5.7 million shares on average volume of 6.5 million; so it's hard to tell just from that.



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



You can see the stock was well above this level (52 wk. high of $16.80) just a couple of months ago. It bottomed out at ~$10, but a year ago this was a $4 stock (not seen on chart). The IV30™ is trading below the HV20™, the 12.5 strike in July is still low, the stock has been much higher. The trade makes sense in terms of vol and direction. I don't know enough about the stock to decide if I like the directional bet.

This is trade analysis, not a recommendation.

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Market Moves and Foreign News - What's Changed in 30 Days?

The US markets are up strong today after a week of big gains. The market moving news today (in part) is that China claims it will finally let its currency (yuan) appreciate against the dollar. The prior stance has been to peg the yuan to the US dollar (no floating rate).



Before we delve into the implications of such a move, let's just recall how volatile the US markets have been (up and down) and how sensitive it has been to foreign happenings.

The Charts Tab (6 months) for the VIX is below (click to enlarge). The top portion is the spot value, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see the VIX hit 48.20 exactly one month ago (5-21-2010). Today, it's been as low as 22.87. We also see the IV30™ in the VIX (the vol of the vol) was 136.28 on 5-21, today it's 83. The driver of the market implosion and VIX explosion was Europe. The fear that Greece, Italy, Spain, Portugal, Hungry and others were in no position to handle their debt load. The very future of the Euro came into question. To read the details of the Euro contagion fear, you can Click here, posted 5-18-2010.



But not to worry, in 30 days, we realized everything was ok. The S&P 500 Charts Tab is included (click to enlarge).



A broader feeling that Europe may not have as deep an impact on the US economy (and therefore financial markets) pushed markets upward. Market up, vol down, happy days (not the TV show)! Note that the up and down swings are mostly "foreign market" driven. Now, back to the news today...

Why Does China's Currency Decision Matter?
As of now (sans today's news) China has kept the yuan low to help exports. i.e. if the yuan is low, buying goods from China is cheap. The ire from the US was simply that the "artificially" weak currency makes exported goods expensive for Chinese consumers.

Good news part (1): We really wanna sell to those 1.3 billion people in the second largest and fastest growing economy in the world and a stronger yuan makes US goods cheaper (to China).

Good news part (2):
The stronger yuan (or just a floating yuan) reduces the threat of inflation in China - or so Monetarist's would have us believe. i.e. Free flowing market prices force equilibrium (generally a good thing). Lower inflation in China implies the government may not need to raise interest rates. In English, the world was worried that inflation in China would force the Chinese government to slow growth. Ah!, slow growth! Since China is the only country still growing, a slow in their massive demand could be catastrophic to a slowing Europe and a "who-knows" US.

Keep in mind, earlier this year China tried to prevent a real-estate bubble by forcing banks to hold larger reserves. i.e. Lend less. Since the yuan will float, I guess we don't need to worry about a real-estate bubble. I mean, do real-estate bubbles ever matter really? I can't remember a single time in the last 2 years minutes when a real-estate bubble had an impact on the world economy.

The Skew Tab for the VIX is included (click to enlarge).



To read VIX Skew - What it Indicates and How Accurate It is, click here.

All in all the news feels good today. A month ago, you know, when the world was ending, things looked bleak. But thankfully the world landscape has changed dramatically (?) in the last month. The VIX is down ~53%, IV30™ in the VIX (vol of vol) is down ~40%, the S&P 500 is up a whopping 7.1%... Wait, is that whopping? Hmm...

Well, I think the US has a good shot of making it to the second round of the World cup. That's pretty good...

This is trade analysis, not a recommendation.

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Wabco Holdings (WBC) - Buying Cheap Vol on Stock Rise

WBC is trading 34.70, up 6.3% with IV30™ up 8.1%. The LIVEVOL™ Pro Summary is below.



The company is a provider of electronic, mechanical and mechatronic products for the commercial truck, trailer, bus and passenger car manufacturers.

The company has traded over 6,293 options on total daily average option volume of just 251. The action is in July; put buyer and call spread seller - both short deltas. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that all the lines are mostly opening (trade volume >> OI). From what I can see, the puts are both purchases, the 35 calls are sales and the 40 calls cover that up.



The Skew Tab snap (click to enlarge) illustrates the vols by strike by month. I have highlighted the four strikes in play. The skew looks pretty normal.



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



You can see the stock has risen sharply recently. Its 52 wk range is [$16.00, $36.92], so it's approaching that high. The trades today are bearish and long vol. Also note that the HV20™ (blue line) has dipped below the IV30™ (red line) as the stock has jumped. So this trade is buying "cheap" vol ceteris paribus and betting on a stock reversal. Note the vol is UP today even with the stock price gain.

This is trade analysis, not a recommendation.

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VXX (VIX Short Term ETN) - Vol of Vol Buyer Near Term on Pattern

VXX is trading 24.92, down 2.3% with IV30™ down 2.8%. The LIVEVOL™ Pro Summary is below.



The ETN has traded over 14,700 options in the first hour. 10,000 contracts traded on a July 26 straddle purchase (a purchase of vol's vol). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size). The puts may not be.



Trade Stats
Buy 5,000 July 26 puts $2.10
Buy 5,000 July 26 calls $1.65
Max Loss (total outlay) = 5,000 * 100 *($2.10 + $1.65) = $1,875,000

You can see the VIX is ~23 down hard from nearly 50 recently. It has followed a pattern where it bounces up and down between mid teens to ~45. Each time it hits an extreme, it moves away form that level hard.

The Charts Tab (6 months) is below (click to enlarge).



Finally the Skew Tab snap (click to enlarge) is included. It shows the vol level of the 26 strike.



If the VIX pattern continues, the market will rise a bit from here, the VIX will hit 17 (ish) then the market will find fear (Europe?), and the VIX should pop. This straddle purchase essentially bets on this scenario.

This is trade analysis, not a recommendation.

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