Risk Laboratory: Ophir Gottlieb

Wednesday, October 27, 2010

Veeco Instruments (VECO) - Depressed Vol and Trades

VECO is trading $38.41, up 1.9% with IV30™ down 2.0%. The LIVEVOL™ Pro Summary is below.

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VECO designs, manufactures, markets and services enabling solutions for customers in the high brightness light emitting diode (HB LED), solar, data storage, scientific research, semiconductor and industrial markets.

I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price >= $7 >= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >= -40
HV180™ - IV60™ >= 8
Average Option Volume <= 1,200
Industry != Bio-tech

The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The VECO Charts Tab is included (below). The top portion is the stock price, the bottom portion is the vol: IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).

We can see:
IV60™: 38.41
HV60™: 67.13
HV180™: 68.14

So, IV60™ is substantially depressed relative to the intermediate term and long term realized movement of the stock.

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

Possible Trades to Analyze
I think it's a reasonable bet that VECO moves away from $38 in the next month and a half. Any call or put spread that has MaxGain:MaxLoss better than 1:1 seems ok. Similar bets in Nov also seem reasonable.

Stuff like:
For delta bets:Nov 36/38 put spread, Nov 38/40 call spread.
More pure vol: Creative Dec spreads (maybe even 1x2).

It's nice that there are a lot of strikes here for some creative spreads, but don't "commission yourself to death" getting too complicated and trading too many strikes.

This is trade analysis, not a recommendation.

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Tuesday, October 26, 2010

Shuffle Master (SHFL) - Vol Ripping on Spec Order Flow

SHFL is trading $9.29, up 4.6% with IV30™ up a whopping 39.8%. The LIVEVOL™ Pro Summary is below.

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The Options Tab (below) illustrates that the Nov 9 calls are mostly opening (compare OI to trade size). Doing a little homework, I believe the OI in the Nov 10 calls is long. With vol and stock up, this feels like opening call purchases.

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

Not surprisingly, the upside skew in Nov is bent up to reflect the long premium interest in the upside calls.

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 sort of bounces around and is nearing it's peak "resistance." Keep in mind the 52 wk high is $10.19, so the Nov 10 call purchases for $0.35 (ish) bet on a new annual high within the next few weeks. More notable, the vol - check out the IV30™ spike. Pretty impressive.

I don't have a lot of trading ideas here other than a Nov 9/10 call spread if it can be done for <= $0.50. This trade is still just a bet, but I feel like it's a touch better than 1:1 with stock up around $9.30. Either way, I'm not super motivated to play this, but what the hell do I know?...

This is trade analysis, not a recommendation.

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JPMorgan Alerian MLP (AMJ) - Very Unusual Trading... In Unusual Investment Vehicle...

AMJ is trading $35.09, up small with IV30™ up 5.5%. The LIVEVOL™ Pro Summary is below.

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From the JPM website:
"Launched in April 2009, the Alerian MLP Index ETNs leverage our trading expertise in MLPs to provide investors convenient access to this emerging asset class through a convenient investment vehicle."

The ETN has traded 12,6000 options in one trade on total daily average option volume of just 220 (hello? 220?). I got color from stud broker Mike Bristow at Vtrader Group: "AMJ dec 35 - 36 c/stupid bot 6300 ~ .90."

In English, someone bought 6,300 Dec 35 calls and bought 6,300 Dec 36 calls for $0.90 total (this is called a call stupid - same side twice). The Stats Tab and Day's biggest trades snapshots are included (below).

Ok, this is a weird trade. Now, I'm not saying, you know... But, I'm just saying... You know what I'm sayin'?

Just another note here. The company averages 26 calls a day... 26!

The Options Tab (below) illustrates that the calls are opening... duh... (compare OI to trade size). The 11,720 is a bit misleading as it's counting a cancelled trade in there. The totals are 6,300 for both lines. The TOTAL open interest across ALL lines is 5,455, of which just 729 is in the calls. So the 12,600 open today is huge for this name.

The largest single day option volume in the last two years in this name (other than today) is still less than 10,000 - and it was a standard put spread. The top volume days are:

10-26-2010: 12,600
7-23-2010: 8,374
7-22-2010: 4,729
7-21-2010: 3,071
8-3-2010: 2,811
9-10-2010: 2,036
8-5-2010: 1,850
8-23-2010: 1,342
... And then nothing over 1,000 as far as I can see...

So, other than a one month period this summer, this thing has never traded over 1,000 contracts in the last 2 years.

Finally, the Charts Tab (6 months) is below. I've just included the stock portion.

We can see the stock has steadily climbed over the last few months from below $32 to now over $35.

This is trade analysis, not a recommendation.

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Coinstar (CSTR) - Earnings Preview and Elevated Vol

CSTR closed at $47.00 yesterday, down 1.0% with IV30™ up 6.2%. The LIVEVOL™ Pro Summary is below.

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The Options Tab (below) illustrates that both the 50 and 55 calls as well as the puts are mostly opening (compare OI to trade size). We can see that Nov vol popped 4.9 points while Dec was up 2.4.

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

We can see the classic front month elevated vol into earnings. Other than that, the skew looks pretty nice. Looking to the stock behavior (below) for CSTR after earnings, we can see it can move fairly substantially.

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 a rather impressive vol divergence between the implied and either of the two historicals (short-term and long-term). Last earnings a similar patten evolved - the market is definitely sensitive to the big move potential for this stock on earnings.

Possible Trades to Analyze
The vol is high, but for a reason. Selling the ATM straddle @ $5.60 feels high given it hasn't moved more than in 7/8 earnings cycles (but those are just one day moves). I guess that's sort of fair value when looking at prior cycles through expiration.

1. If you have a delta bet on this thing, doing the one dollar call (or put) spread for anything less than $0.50 feels like a pretty reasonable (or better than reasonable) bet. The problem is, you'd have to be right on the delta direction.

2. The Nov 40/41 1x2 put spread (buy one 41 sell two 40) for a $0.50 credit might be a play simply on the high vol and sharp skew while essentially trying to stay out of the way of the stock move. Naked downside though...

Other than that, I think this name is ok to trade with a delta bet and being contract neutral, playing both sides feels expensive but selling naked vol could be a touch too risky.

This is trade analysis, not a recommendation.

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Monday, October 25, 2010

Expedia (EXPE) - Vol Climbs on Put Buyers into Earnings; Possible Arb

EXPE is trading $28.53, up 0.9% with IV30™ up 13.1% and earnings due out in three days. The LIVEVOL™ Pro Summary is below.

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The Options Tab (below) illustrates that the puts are mostly opening (compare OI to trade size). The flow looks long. The Stats Tab above indicates that people are getting long premium and short deltas (in options) - i.e. buying puts. Of the eight largest trades today (above), seven are puts going up on the offer, the eighth are calls hit on the bid.

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

We can see the vol divergence opening up between the front month and the back (which is expected into earnings). Note also from the Options Tab (above) that the Nov vol is up 7 points, while Dec is up 3.1 and Jan'11 is up 1.4.

Historically EXPE earnings vol is pretty fair valued - it looks like the one day ATM straddle went up 4/8 and down 4/8 days.

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

We can see the rather impressive vol increase of late. It's also interesting to note that EXPE IV30™ tends to trade above it's long term realized (HV180™).

As of this writing, the Nov 26 puts are offered @ $0.55 (I know the snap I took doesn't show it, just trust me). If one could buy those for $0.55, sell two of the Nov 25 puts mid-market @ $0.35 and pay $0.20 in the Nov 24 puts, that's a $0.05 butterfly on a bet that EXPE goes down on earnings. Might be worth the gamble for small. If you can get it for even, well.... you know...

This is trade analysis, not a recommendation.

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MGM Mirage (MGM) - Vol Play into Earnings

MGM is trading $11.25, up small with IV30™ up 4.7%. The LIVEVOL™ Pro Summary is below.

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The goal with this scan is to identify short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

First, let's look to the MGM 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™: 53
HV20™: 78
HV180™: 62

So, IV30™ is depressed relative to the short term and long term realized movement of the stock. The HV20™ is a bit misleading as MGM gapped down $1.51 on 10-13-2010. But still, the longer term realized is in the sixties.

Now, let's look at how MGM has moved on earnings (below). I have included the one day straddle move. That is, the change in straddle value from the day before earnings to the day after.

--- IMAGE CORRECTED 12:15PM EST

We can see that 4/8 times, the one day straddle went down in value (vol was a sale) and 4/8 times the one day straddle was a purchase (vol was a purchase). To me that indicates that the vol has been pretty fairly priced - it's essentially a coin flip. But...

The average IV one day before earnings has been 143.37%. That number is useless though, given how much the market has changed over the last 8 quarters. More relevant, the last two earnings cycles IV was 71.51% and 71.59%. One was a sale, one was a purchase. Right now I see the ATM straddle priced at ~52.5% vol. Obviously, vol should rise into earnings so it shouldn't really be in the 70's yet, but given that vol is depressed AND this earnings vol analysis, this makes an interesting one to analyze.

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

Possible Trades to Analyze
1. Buy the Nov 11/12 strangle for 52ish vol or $0.83.

2. The idea of buying naked options into earnings makes me a little sick, so maybe we can look at a spread. Sell the Nov 10/13 strangle @ $0.28.

3. Rather than looking at Nov, check out Dec. Theta works less abruptly as the trade awaits earnings, though it does get longer vega and in general is a more expensive trade.

This is trade analysis, not a recommendation.

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Sunday, October 24, 2010

ATP Oil & Gas (ATPG) - Depressed Vol into Earnings

ATPG closed at $14.73 on Friday, down 0.9%. The LIVEVOL™ Pro Summary is below.

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ATPG is engaged in the acquisition, development and production of oil and natural gas properties in the Gulf of Mexico and the United Kingdom and Dutch Sectors of the North Sea (the North Sea). I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price >= $7 and <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 and >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The ATPG Charts Tab (vol only) is included (below). IV60™ - yellow vs HV60™ - blue vs HV180™ - pink.

We can see:
IV60™: ~65.72
HV60™: 74.93
HV180™: 79

So, IV60™ is depressed relative to the intermediate term and long term realized movement of the stock. Further, looking at the vol chart we can see a time when IV60™ traded at a substantial premium to the realized vol (around early June).

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

Note that earnings are projected to be in the Nov cycle, early to mid November so there is a vol event embedded in the Nov and Dec options.

Possible Trades to Analyze
1. Buy the Dec 15 straddle for 64 vol or $3.00. This requires ATPG to be outside the range [$12, $18] if held to Dec. expo. This trade also wins to increased vol in Dec if it is enough to overcome the theta (time decay). The 52 wk range for ATPG is [$8.16, $23.97]

2. Sell something around that long straddle in #1. Maybe sell the Dec 12.5/18 strangle @ $1.05, reducing the total outlay to $1.95.

3. Try #1 above, and sell more than 1:1 in Dec. Maybe sell 2 puts in the Dec 12.5/18 strangle, yielding a total debit of just ~$1.20.

4. The alternative of course, is to do the opposite. Maybe the stock really is going to sit at $15; the De 14/15/16 butterfly looks like a MaxGain:MaxLoss payoff of ~ 7:1 on a pretty cheap $0.13 bet. Note that the payoff ratio is so big b\c the odds of max gain (ish) are low.

This is trade analysis, not a recommendation.

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Friday, October 22, 2010

Xyratex (XRTX) - Low Vol in Stuck Stock

XRTX is trading $16.23, up 0.5% with IV30™ up 0.9%. The LIVEVOL™ Pro Summary is below.

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XRTX is a provider of modular enterprise-class data storage solutions and storage process technology. I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price>= $7 and <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 and >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The XRTX Charts Tab is included (below). The top portion is the stock price, the bottom portion is the vol: IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).

We can see:
IV60™: 55
HV60™: 63
HV180™: 64

So, IV60™ is depressed relative to the intermediate term and long term realized movement of the stock. We can also see that the stock gapped down hard after earnings on 9-30-2010, and since then has been essentially frozen. Even given that limited move, the implied is still below the intermediate-term realized. Note though, the HV10™ is a minuscule 28.41.

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

Possible Trades to Analyze
1. We're looking at the IV60™, which is more like Dec than Nov. A Dec 15/17.5 strangle purchase for $1.65, buys 54 vol (ish). It requires XRTX to be outside of [$13.35, $19.15] if held to Dec expo.

2. Doing trade #1 and selling some wings, like the Dec 12.5/20 strangle reduces the total debit to ~ $1.15, though gives up some "big move" room. It's hard for me to stomach naked purchases, so I threw this possibility out there too.

3. Ok, a bit wild here, but how about selling the Nov strangle and buying Dec. I know that's selling vol that I just said was low, but if the stock hangs around for a few more weeks as it has, that long strangle in Dec will look damn cheap with a sale of the Nov to give it a hair cut (if that's a winner). Just fyi, not in love this trade.

4. Maybe this thing can't gap down much further in the near-term without any earnings news?... Selling the 59 vol Dec 12.5 puts is a backwards yet somehow reasonable approach to this phenomenon as well.

This is trade analysis, not a recommendation.

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Brigham Exploration (BEXP) - Drillers Again: Vol Up, Stock Up

BEXP is trading $20.99, up 4.0 with IV30™ up 5.4%. The LIVEVOL™ Pro Summary is below.

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The Options Tab (below) illustrates that the calls and puts have larger OI than trade volume. From what I can tell, the call OI is long, so this would be a double down. The put OI actually looks long as well. If I'm right, that these puts are getting offered down (seller initiated), then the OI should go down tomorrow.

I've also included the Time & Sales snapshot (below) for those puts. You can see them trading on the offer, but on a tight market. If you hold the Ctrl button down and click the trade in LVP, you will see these were offered down.

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

This is pretty cool. The Nov 23 calls are bid up while the Dec 23 and 24 calls are oddly low vol. Could make for a nice trade.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV30™ vol difference.

We can see the stock trended up from ~ $16 to ~$21 in just a month. We can also see the vol now touching the long term realized.

Possible Trades to Analyze
1. Try to spread that skew. Buy the Dec 23 calls for $0.95 and sell the Nov 23 calls @ $0.60. That's a net debit of $0.35, selling 55 vol and buying 51 vol. One major problem though is earnings... They fall in Nov (projected).

2. Make a same month skew trade. Check the skew chart back out and look at the vol difference between the Nov 22 and 23 calls. That call spread would cost ~ $0.30 and sell higher vol than it purchases in a call spread, which isn't the norm. That's a small bullish bet with a 7:3 MaxGain:MaxLoss ratio.

3. Doing some 1x2 call or put spreads might be worth a look. Check the skew charts and find some good entry points. Keep in mind, short more options than you're long is very risky.

I don't love selling this vol naked (like an ATM straddle) for three reasons:
1. The IV30™ is still ~fair to long-term realized (see charts tab).
2. Earnings are in this cycle.
3. This vol has a good chance of creeping up if it does what MMR did. If you're feeling frisky, maybe a vol sale after a few more points of vol rise (if that happens) could be a risky play.

This is trade analysis, not a recommendation.

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