Regional Banking ETF (KRE) - Vol Buyer in Oct; Bearish Bet in Sep

KRE (Regional Banking ETF) is trading $20.98, down 1.6% today with IV30™ spiking up 10.5%. The LIVEVOL™ Pro Summary is below.



The ETF has traded over 9,700 options on total daily average option volume of just 3,047. The most interesting trade to me is an Oct 21 straddle purchase 1,700x . The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that both the calls and the puts are mostly opening (compare OI to trade size). I've also highlighted the OI in three lines in Dec. A huge Dec 19/23 put spread purchase funded by Dec 26 call sale went up 7-29-2010. The straddle purchase today and put spread purchase in July are both bets on a vol jump and a down move in the ETF.



The IV30™ was up 5.3% yesterday. Add that to the climb today and we're looking at over 15% short term vol jump in two days. Note that the banking stocks can be very sensitive to market sentiment; particularly negative sentiment.

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



We can see the ATM vols for Oct (yellow) and Dec (green) lie on top of each other. Sep is just a bit below.

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.



Note first how the ETF price has declined of late. The 52 wk. high is $29.79. More impressive is the vol jump of late. Just last week the IV30™ was 33; it's up more than 20% since.

Possible Trades
If you're bearish but want to sell the elevated IV30™, a Sep 20/19 1 x 2 put spread for even looks decent. Maybe purchase 1 Sep 17 put for $0.07 if that's cheaper than carrying the margin.

A little more bearish but more expensive is a Sep 21 put purchase against 2 Sep 19 put sales for a net debit of $0.45. Again, buying a cheap put on the downside may be less expensive than carrying the margin.

Contrarian Trades: Sell straddles

This is trade analysis, not a recommendation.

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* UPDATE: Cemex (CX) - Vol Pops Again on Housing Data

* UPDATE

CX is trading $7.65, with IV30™ up another 6.7% off of yesterday's 14% climb . The LIVEVOL™ Pro Summary is below.



Yesterday we looked at CX, and I posted this: Cemex (CX) - Vol Buy, Delta Bet on Dipping Stock

Today the vol is continuing to climb on the housing data even though the underlying, as of this writing, is literally unchanged.

The company has traded over 23,000 options in the first two hours on total daily average option volume of just 3,996. Yesterday the action was the Sep 7/8 risk reversal (buy puts/sell calls) without stock. Today it's the Oct options that are active; the Oct 9 calls and Oct 6 puts have accounted for over 12,500 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 are mostly opening (compare OI to trade size). The puts have short OI and are purchases today, so the OI will drop today, best I can tell. The calls are tough to tell in terms of direction. They look negotiated and feel like purchases, though if they were sales the trade would echo the risk reversal yesterday in Sep. Either way, it's a vol purchase; either in a strangle or a risky (buying the skew).



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



It's interesting to see how the Sep and Oct skew downside literally lie on top of each other.

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



As we saw yesterday, the IV is exploding. IV30™ is now 57% (20 vol points) higher than HV20™.

Some possible trades:
Sell Sep and buy Oct (beware, this gets long vega on jumping vol)
Sell a straddle in Sep, buy a strangle in Oct
Either of the above on a ratio (more sales than purchases; maybe 1 x 1.25)
Sell naked Sep or Oct (pretty risky)

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S&P 500 (SPY) - Scalping Skew in the SPY Weeklies

I posted this article on TheStreet.com; the OptionsProfit service. Now that it's published widely, I can post it here for all of us.

Check out the skew chart in the article. It came in huge today on that 104 line. We'll see if the opportunity presents itself again. My best bet is, yes.

Click to read: Scalping Skew in the SPY Weeklies

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DR Horton (DHI) - More Sep Vol Selling in the Home Builders

DHI is trading $10.14, up 1.6% with IV30™ up 3.8%. The LIVEVOL™ Pro Summary is below.



On 8-18-2010 I wrote this: S&P Homebuilders (XHB) - Getting Long Again; But Selling the Vol in Sep

This trade follows in that same line. I also see front month vol sales in the puts in: HSY, WAG, GME... Feels like people are selling elevated vol, but only in Sep - no real stand taken further out.

The company has traded over 18,000 options hour on total daily average option volume of just 5,929. The largest trade, accounting for over 13,000 contracts was a Sep 10 straddle sale 1 x 2 (big on the puts); no stock. I got this color from Mike Bristow, head of Vtrader Group, broker side. 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 put OI is large and is short best I can tell. This should increase the OI.



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



Other than the 11 line, the Sep 10 is the lowest vol in any of the strikes for the front two months (I've highlighted it in the skew chart). The vol sale today was ~40 on HV10™ of 44, HV20™ of 44 and HV30™ of 45. Hmm...

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.



We can see the stock has dropped hard off it's April/May highs of ~15.50 down now to the $10 level. The IV30™ (red line) is right on top of the HV20™ (blue line). The stock has found a steady state at this price for the last two months. The trade today bets on more of the same for the next month.

Trade Stats
Sell 4500 DHI Sep 10 calls @ $0.55
Sell 9000 DHI Sep 10 puts @ $0.30
Net credit = $517,500
At expo. this wins if the stock is in [$9.43,$11.15]. The trade is also short $13,500/vol of vega. So for every 1 point change in vol, the position value changes by $13,500. Keep in mind vega is a function, not a number, so it's not linear.

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Cemex (CX) - Vol Buy, Delta Bet on Dipping Stock

CX is trading $7.79, down 4.2% with IV30™ jumping up 13.9%. The LIVEVOL™ Pro Summary is below.



CX is a global cement manufacturer with operations in North America, Europe, South America, Central America, the Caribbean, Africa, the Middle East and Asia.

The company has traded over 18,000 options in the first two hours on total daily average option volume of just 3,896. The largest trade was 5,000 Sep 7/8 risk reversals (buy put/sell call) no stock - net credit of $0.03. Darren Story from Student Options on the floor gave me this color. 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 opening (compare OI to trade size). The put OI is long as best I can tell; meaning this will ~double the OI. The initial interest bought those puts for ~$0.10 a few weeks ago.



Note the monthly vols at the top of the tab. Sep, Oct, Jan '11 and Apr '11 have all converged to 50. Each month is also up substantially today, with the front experiencing the largest rise. This trade gets long the elevated vol with a decided delta bet.

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



We can see above that while the trade is premium neutral (or even small positive), it is long vol (buying the skew). Specifically it buys 60 vol, sells 48.

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



Note the recent stock drop and coinciding vol pop (highlighted in the chart). The IV30™ (50) is 18 points higher than the HV20™ (32) and 7 points higher than the HV180™ (43). Any way you slice it, this is a purchase of elevated vol and a short delta bet in a dipping stock.

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Activision (ATVI) - Half a Million Calls Trade

ATVI is trading $10.90, down 1.4% with IV30™ up 0.8%. The LIVEVOL™ Pro Summary is below.



This color comes from Darren Story, Student Options:
ATVI Customer:
bot 125,000x feb 12c ~ .62
bot 62,500x feb 14c ~ .20
bot 62,500x feb 15c ~ .11
sld 250,000x feb 13c @ .37 , xx-all CBOE

The company has traded over 500,000 options on total daily average option volume of just 5,959. The largest trades are listed above. 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 everything is mostly opening (obviously).



Let's take a look at the PnL chart at expo. for Feb'11.



Breakeven Low: $12.03
Breakeven High: $13.96
Max Gain: $12,078,000
Max. Loss: $6,687,500

Not much else to say other than, wow... This is a gigantic bullish bet that ATVI goes to $13 (short strike). Note this isn't naked long - this is a range bound bullish bet.

This is trade analysis, not a recommendation.

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Hershey (HSY) - Selling the Elevated Vol

HSY is trading $47.71, up small with IV30™ down 11.1%. The LIVEVOL™ Pro Summary is below.



Mike Bristow of Vtrader Group gave me the color on the large sale which is pushing IV30™ down hard.

The company has traded over 13,000 options on total daily average option volume of just 3,531. Puts have traded almost 3:1 to calls. The largest trade was 7,500 Sep 46 puts sold @ $0.50 (over 8,700 have traded in total) outright (no stock). 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).



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.



Note how high the IV30™ has spiked past the HV20™. This trade sells 23 vol against an HV20™ of 14, HV10™ of 13 and longer term HV180™ of 21. We can also see that before today, IV30™ reached as high as 26.3, it's down a full 3+ points today.

I like selling this vol (note the dividend, fyi). I want to sell it twice and buy a put above it to keep some short deltas... I'm a bear, deal with it :-).

Trade to Analyze
Buy 1 HSY Sep 47 put for $0.79
Sell 2 HSY Sep 46 puts @ $0.46
Collect $0.13; naked short the downside below $45. For margin worries, I could buy the Sep 43 puts for $0.12.

Disclosure: I did the above trade without the 43 puts.

This is trade analysis, not a recommendation.

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Chelsea Therapeutics (CHTP) - Trading a Bio-tech With News

CHTP is trading $4.17 with IV30™ up 12.0%. The LIVEVOL™ Pro Summary is below.



Here's what's up (source: 8-13-2010: Seeking Alpha):
----------
CHTP latest stage drug is Droxidopa which is currently in two pivotal phase 3 trials for the treatment of Neurogenic Orthostatic Hypotension. They completed one phase 3 trial last year, which missed the primary endpoint, yet did very well in other endpoints. This caused the stock to drop from ~$7.50 to ~2.80s. Chelsea then announced they were going to meet with FDA to discuss changing the primary endpoint in their second phase 3 trial – the FDA said yes, and Chelsea changed the primary endpoint of Study 301 to an endpoint that had previously demonstrated a statistically significant improvement in NOH patients.
----------

And more recent news (source: 8-19-2010: Yahoo! Finance):
----------
Chelsea Therapeutics International, Ltd. (Nasdaq:CHTP - News) announced that a new investigator-led phase II clinical study of Droxidopa, an oral synthetic precursor of norepinephrine, has been initiated in chronic fatigue syndrome (CFS).
----------

The company has traded over 10,000 options on total daily average option volume of just 505. The largest trade was an Oct 2.5/5 strangle sale @ $1.575. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that both sides are opening as this is the first day of Oct options for the stock.



Note the vols by month along the top. Sep is 132 while Oct is 210. Clearly the option market implication is that news is most likely do out in Oct (though some believe Sep and others Dec from news I've read).

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



What's notable here is that the skew looks normal. Usually we see a parabolic skew in bio-techs were the upside and downside (wings) are very expensive relative o the ATM.

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.



We can see the stock rip of late on news from 8-17-2010 that a competitor drug, (Midodrine - currently the only FDA-approved drug for Orthostatic Hypotension) which has both label and generic versions, may be pulled by the FDA. You can read about this development here from Seeking ALpha: Chelsea Could Benefit From FDA Proposition.

We can see the IV30™ (red line) is perpetually above the HV20™ (blue line) which means in the past, a sale of vol has been a winner repeatedly. Now that trials are coming due, that feels a bit scary. The strangle sale trade wins at expo if the stock is in ($0.93,$6.57) which is a pretty fat range. The highest "potential value" I've seen for this stock is ~$20, though most have been in the $7 range. Back in Sep of 2009, the stock collapsed from ~$7 to below $3 (which is well above $0.93).

I see very limited downside risk to the strangle sale (duh), upside, don't really know. A $0.35 purchase of the Oct 7.5 calls seem like a reasonable hedge. That would leave the PnL range at Oct expo in ($1.28, $6.22). I like that.

Alternatives can be to purchase the Sep 7.5 calls for $0.10 in hopes that you can purchase the Oct 7.5 calls later for less than $0.20 (not likely). You could sell some Sep "hoping" there really isn't any news in Sep. That's a tough decision - the Sep vol is elevated enough that a sale collects some decent premium... but, it's elevated b/c the some big news might come out early (I guess).

My general opinion in bio-techs is that it's just coin flipping against someone else that knows which way the coin is shaved...

This is trade analysis, not a recommendation.

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Hologic (HOLX) - Call Volume Jumping

HOLX is trading $14.84, up 1.1% with IV30™ up 5.3%. The LIVEVOL™ Pro Summary is below.



The company has traded over 7,700 options in the first half hour on total daily average option volume of just 1,561. All but 245 contracts have been calls for a 30:1 call:put ratio. HOLX has been on the high volume scan for a while now with call volume jumping, today the action felt worthy of a note. The largest trades have been sales of the Sep 15 calls 2300x and purchases of the Oct 15 calls 4,500x. 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 in Oct are opening as this is the first day of trading for that expo. The Sep calls are sales on long OI as best I can tell; they are closing.



Note the vols by month at the top of the tab. Sep is 44.5 while Oct is 57.2. This is not an earnings phenomenon, as the next cycle should be in Nov (projected).

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



This clearly demonstrates the vol diffs as well as skew shapes per month. Note the flatter upside in Oct (yellow) relative to Dec (green). But, even though Sep vol is below both, that upside is kinked the furthest up even with the selling pressure.

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.



HOLX jumped on earnings on 8-2-2010, peaked then has dropped to a sort of steady state. The HV20™ is above the IV30™ even given the jump today in implied. The upside skew in Oct can get very "bumpy" at times with liquidity available meaning spreads can show some edge if you watch closely.

This is trade analysis, not a recommendation.

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Trade Journal: 8-22-2010

Click to enlarge (minimum possible trade size reported).



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Leap Wireless (LEAP) - When Selling Low Vol Makes Sense

LEAP is trading $11.02 up 2.4% today. The LIVEVOL™ Pro Summary is below.



The company has traded over 16,000 options on total daily average option volume of just 5,243. 8,000 contracts have traded in a sale of 4,000 Sep 10/12 strangles. 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). I believe the interest in the Sep 12 calls is long, so OI should decrease off this trade. Note that Sep vol is lower than any other month (top of Options Tab).



The strangle sells 44 vol. The HV's are as follows (click to enlarge):



The intermediate term HV measures include the sudden drop in stock price after earnings; so they're a bit elevated. HV180™ (6 months) is 58; so that's a decent measure of "expected" vol.

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



We can see the strikes that traded; this is unequivocally selling low vol relative to Oct and the other months.

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.



Note in the stock chart we can see the sharp drop off of earnings and the near term slight recovery. Then in the bottom chart we can see the rather large vol difference between IV30™ (~45) and HV20™ (67.45).

So everything we've seen here is that this trade sells low vol... Why would this be a reasonable trade? At times, after a stock has made a large move off of news (like earnings), stock's tend to "sit" for several weeks. Almost like it's been stunned into a catatonic state. In these cases, even the low vol can be a sale. I don't actually like this trade b/c takeovers (and takeover rumors) are back in the market and LEAP is a perpetual candidate, but I found it an interesting trade of low vol off a big move. Note the HV10™ is < 35. So the vol sale is ~10 points higher than that.

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