Eastman Kodak (EK) - $1B Trade Commission Decision Due out Today

EK is trading $3.46, up 10.5% with IV30™ ripping up 35.7%. The LIVEVOL™ Pro Summary is below.



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Eastman Kodak Company (Kodak) is engaged in the sale of imaging products, technology, solutions and services to consumers, businesses and professionals.

There is some big news possibly out today. Here's a snippet from Bloomberg:
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Kodak Says $1 Billion at Stake in Apple, RIM Patent Dispute

A victory for Eastman Kodak Co. (EK) in its patent fight with Apple Inc. (AAPL) and Research in Motion Ltd. (RIMM) may add more than $1 billion in revenue from royalty payments, Chairman and Chief Executive Officer Antonio Perez said.

A decision is scheduled for about 5 p.m. Washington time today on whether the U.S. International Trade Commission will review a judge’s findings from January that Apple’s iPhone and RIM’s BlackBerry don’t violate Kodak’s patent on an image- preview feature in camera phones. Opening a review would revive Kodak’s effort to extract compensation from Apple and RIM.

Kodak used the ITC to gain $550 million from Samsung and $414 million from LG for allegedly infringing the same patent as in the Apple and RIM cases.

Source:Kodak Says $1 Billion at Stake in Apple, RIM Patent Dispute by Chris Burritt and Susan Decker
---

Very nice...

The decision has brought out the speculators and they're buying premium from what I see. The company has traded over 42,000 contracts in the first hour (ish) on total daily average option volume of just 12,383. Calls have traded on a nearly 6:1 ratio to puts. The stock itself has already traded more than 130% of its daily average volume. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. Apr 4 calls have traded ~9,700x, but on an existing OI of 9,338. My best guess is that the order flow today is purchases but that's against short interest. For what it's worth, as I'm writing this the volume on that line is now over 10,000. The OTM calls in May are also active.



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



We can see that in all of the front three months, the skew does bend upwards to the OTM calls. In English, the option market reflects two sided risk (the downside is also bent up). We can also see how much higher the vol is in the front month than the back months -- reflecting an expectation of a vol event (a decision) this cycle.

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 stock chart is pretty wild. Gaps up and down. Today the stock has a pop and the vol (bottom portion) is exploding. The abrupt move in the vol may reflect that the actual date of announcement may have been a surprise.

Possible Trades to Analyze
Yet another disclaimer here -- this is pure speculation. Just a fun analysis of some trades to examine. Also, note that there is always the possibility of unexpected delays which can crush the front month vol (and others) making all positions long vega/premium essentially dead.

1. Bet to the upside:
a. Buying the Apr 4.5/5 call spread for $0.04 yields a MaxGain:MaxLoss of 11.5:1. Of course, EK would have to explode up ~45% (and stay there to expo) to reach that level. Also note, just to reach the long strike, the stock would need to pop ~30%.

b. The May 4/4.5 call spread can be bought for ~$0.10. This yields a MaxGain:MaxLoss of 4:1, but only requires the stock move up 30% to reach maximum profit level (though it has to stay there or above) and only requires the stock move up ~16% to hit the long strike. Note that the Apr 4/4.5 call spread costs ~$0.09, so maybe just the extra $0.01 of premium makes May more attractive... or not...

c. Buying naked calls is also a possibility -- like the Apr 4 calls for $0.15 (or whatever).

2. Bet to the downside:
a. The May 3.5/4 put spread costs ~$0.37 but has all $0.50 in parity right now. I believe Apr costs about the same, so, ya know...

b. An interesting one I see is:
Buy the Apr 3 put for $0.13.
Sell the May 2.5 put @ $0.07.
Pay $0.06, but note the risk here is not just that EK doesn't go down. This trade is also short the back month, so a close is likely necessary on Apr expo even if the news gets delayed by a month.

3. High risky/naked bets:
a. Downside:
Buy the May 3.5 put for 0.45.
Sell 2 of the May 3 puts @ $0.20.
Pay a $0.05 for downside but risk a total stock collapse as this is naked short puts below $3. The nice thing here is that the stock can only go down to $0.

b. Upside:
Dare I mention a 1x2 (or 1 x 1 x 1 (selling 2)) here?... This is much riskier than #3a as there's hypothetically no ceiling to the upside.

4. Just watch the news play out -- it will be an interesting outcome either way.

This is trade analysis, not a recommendation.

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Liz Claiborne (LIZ) - Multi-day OTM Call Buyers Ahead of Earnings

LIZ is trading $5.35, up 1.7% with IV30™ up 6.2%. The LIVEVOL® Pro Summary is below.



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Liz Claiborne, Inc., incorporated in January 1976, designs and markets a global portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX.

I've noticed now for the second day, large call accumulators in the May 6 line. With LIZ earnings due out in early May, I felt this was now worth a note.

The company has traded over 13,000 contracts on total daily average option volume of just 1,687. Calls have traded on an 8:1 ratio to puts. The largest trade was a 4,000 lot bought of May 6 calls for $0.375 tied to $5.37 stock on a 37 delta. Color provided by stud broker Mike Bristow of the V-trader Group. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls in May show a very large OI. On 3-21-2011 the OI jumped from 0 to 10,083. The calls traded for $0.30 on a 0.20 x 0.30 market -- they look like purchases. Today, the largest order was purchases a again.



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



We can see the May 6 line is bid up from the order flow. May in general has elevated vol to the other months (Apr and Jul) due to earnings. In addition, the Apr 6 and Jul 6 lines are bid up -- so the order flow has had an impact on the skew throughout the term structure.

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).



Note that the IV30™ has popped of late as the stock has stood still. Also note that this used to be a ~$7.50 stock until a collapse of sorts in early Jan. On 1-6-2011, the news from AP read:
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Apparel maker Liz Claiborne Inc. on Thursday cut its outlook for the fourth quarter and second half of 2010, sending shares down sharply.
In aftermarket trading, Liz Claiborne shares sank $1.34, or 19.4 percent, to $5.56. The stock closed the regular Thursday session down 16 cents, or 2.3 percent, at $6.90.
Source: AP
---

Possible Trades to Analyze
1. Call spread in May:
The May 6 buying has pushed that lines' vol above the ATM, so a spread that purchases the ATM and sells the slightly elevated vol is worth examining.
Buy the May 5/6 call spread for $0.40.
Note that there is $0.35 of parity in this trade already.

2. Calendar spread Apr/May:
Although the vol is elevated in May (earnings), a calendar that sells the cheaper Apr in order to own the more expensive May does still sell some elevated upside skew in Apr.
Buy the Apr/May 6 call spread for $0.25.
The key here is to get the $0.15 sale off in Apr -- otherwise, this starts to look less attractive.

3. Risky Trade:
A risky trade is sitting on the board here where both of the elevated skews can be sold (both months).
Sell 1 Apr 6 call @ $0.15.
Buy the May 5/6 call spread for $0.40.
This is a net debit of $0.25 but risks MORE THAN THE DEBIT. This trade is naked upside above $6 (and starts to lose above $6.75). If a takeover comes around (or anything that really pops the stock), this could be a big loser.

This is trade analysis, not a recommendation.

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TIVO - Skew Shape Changes, Risk Still Looms Large

TIVO is trading $8.68, up 1.6% with IV30™ up 2.1%. The LIVEVOL® Pro Summary is below.



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I wrote about TIVO on 3-4-2011. You can read that post here:
TIVO - Implied Risk Criss Crosses on Upside Skew

Just to pull things together, I've also included the Livevol® Pro Summary as of that day.



So, stock is down and vol is up since then -- both substantially at -7% and +19% respectively.

In the earlier post I wrote about the upside skew, specifically that the front month upside skew was higher than the second while the ATM vol was lower from month 1 to month 2. Let's look at the skew as of 3-4-2011.



Today I see some completely different vol phenomena. The Skew Tab as of a few minutes ago (3-24-2011) is included below.



First, the ATM vol in the front (which is now Apr, not Mar) is above the ATM vol in the second month (which is now May, not Apr). Second, the upside skew in month 2 is downward sloping. In English, now the upside risk that's reflected in the front month is no longer as abrupt in the back months. Tricky...

Let's look to 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).



Umm, hello. The vol is exploding -- obviously there's a vol event (likely a lawsuit result/hearing). The interesting part can be seen in the Options Tab, below.



The ATM straddle in Apr is priced at ~122 vol, and ~120 vol in May (so a 2 point vol difference). But, the upside skew difference is 20 points on the 11 strike and 26 points on the 12 strike. That seems like a trade worth examining, if for nothing else, just to understand what the option market is reflecting.

Possible Trades to Analyze
1. Upside skew calendar between Apr and May:
a. Buy the Apr/May 11 call spread for $0.48.
b. Buy the Apr/May 12 call spread for $0.39.

2. Upside skew calendar between Apr and Aug:
Note that Aug ATM vol is just 88 (lol, "just 88"). The upside skew in Aug (see skew snap, above) is flat, so there isn't any "extra vol" to be paid to own the upside wings.
a. Buy the Apr/Aug 11 call spread for $0.67.
b. Buy the Apr/May 12 call spread for $0.58.
These two trades scalp ~55 and ~60 vol points respectively. By scalp all I mean is, selling higher vol than purchasing. The trick here is that owning Aug vs Apr is long vega, so a vol crush can destroy this position.

An extension to consider here is looking at #2 (a. or b.), and if TIVO kinda hangs right here, to sell the May options against it. Maybe even diagonal to own some deltas (so sell a higher strike in May than is owned in Aug). This could leg into a very cheap call spread for a volatile stock.

3. Just watch and wait for other opportunities to analyze.

NB: All of the trades discussed above are quite risky as we're dealing with a super volatile lawsuit heavy company which is nearly impossible to predict.

This is trade analysis, not a recommendation.

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Pier 1 Imports (PIR) - Calls Trading Ahead of Earnings

PIR is trading $9.58, up 3.2% with IV30™ up 0.7%. The LIVEVOL™ Pro Summary is below.



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Pier 1 Imports, Inc. conducts business as one operating segment consisting of the retail sale of decorative home furnishings, gifts and related items... Ya know.. Pier 1...

This is an interesting one due to order flow ahead of earnings on 4-7-2011.

The company has traded 6,561 contracts on total daily average option volume of just 354. Calls have traded on a 385:1 ratio to puts. The action is in the Apr 10 and 11 calls as well as the May 10 calls. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that if the trading is one sided, then the calls are mostly opening (compare OI to trade size). When looking down the front months for PIR, I don't see any OI larger than 1,916, so these trades are large.



The direction is a bit confounding, I must say. On all three lines I can see orders which look almost certainly long and orders which look almost certainly short. I'm very curious to see the OI tomorrow -- maybe it will be small (indicating two sided trading)... or not...

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



This is where the confusing order flow persists. It looks like the May 10 line is highest in that month -- so the ATM vol is higher than both sides of the OTM skew.. weird...

The upside in Apr looks flattish rather than downward, so hypothetically that could indicate buying, but then again, the vol in both months in general is up tiny but that could be normal daily perturbations. But, with VIX down, the circumstantial evidence points ever so slightly toward the orders being purchases (i.e. if VIX is down and vol is up in PIR, that could indicate buying orders pushing the vol up in the face of a market with dropping vols).

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 stock has just bounced around in the same channel for some time. IV30™ is elevated relative to the short-term and long-term historical vols, but by an amount that feels about right with earnings approaching.

Possible Trades to Analyze
For now, just watch. Let's see what happens to that OI. If the bullish orders (or bearish) start piling in, perhaps we can re-examine with a kink (or two) in the skew and analyze some nifty spreads.

This is trade analysis, not a recommendation.

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Wyndham Worldwide (WYN) - Vol Seller in May On Convergence

WYN is trading $30.28, down 0.6% with IV30™ down 4.1%. The LIVEVOL™ Pro Summary is below.



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Wyndham Worldwide Corporation is a hospitality company. The Company offers individual consumers and business customers a range of hospitality services and products across various accommodation alternatives and price ranges through its brand portfolio.

There is some interesting vol order flow in May that I felt was worth a note.

The company has traded over 9,500 contracts on total daily average option volume of just 1,915. The action is in the May 30/31 strangle, which has been sold ~ 4,000x (for 8,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size). The resulting OI should be larger than on any other lines in the front two months.



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



The line-by-line skew has maintained it's shape and more holistically, May vol has not dipped below Apr (May is actually 2 points higher than Apr).

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV60 - yellow vs HV60 - blue vs HV180™ - pink).



Specifically:
IV60: 33.20
HV60: 30
HV180: 31.23

So the intermediate-term implied vol (IV60) is still above the intermediate-term historical trend (HV60) and the long-term trend (HV180). We can see though that the IV60 was actually as high as 39.45 on 3-16-2011, and has begun to converge with the historical vols since then. In English, the vol trade looks to sell the high yellow line which seems to be dipping down to the other two colors.

This is trade analysis, not a recommendation.

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Harbin Electric (HRBN) - Elevated Vol, Calendar and Takeover

HRBN is trading $17.76, up 3.1% with IV30™ down 3.9%. The LIVEVOL™ Pro Summary is below.



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Harbin Electric, Inc. (Harbin Electric) is a holding company. It designs, develops, manufactures, supplies and services a range of electric motors, including linear motors, specialty micro-motors and industrial rotary motors. It sells its products in China, but also to certain international markets.

I wrote about this company on 11-16-2010. You can read that post here:
Harbin Electric (HRBN) - A Wild Story and Wild Vol

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the second and third months. There is an additional twist here with an earnings date.

Custom Scan Details
Stock Price >= $5
Sigma2 - Sigma3 >= 7
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=50
Sigma2, Sigma3 >= 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 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.

Having said that, this time I want to examine the vol difference between the first and third months.

Looking to the Skew Tab (below), we can see the elevated vol in the first month (red line) relative to the third month (green line).



HRBN just released earnings on 3-16-2011, so that volatility event is out of the way. I see in some places that the next projected earnings are due out in May (which is odd as that's just two months). I'm not totally convinced, but Jun is likely to have another earnings release (though also not guaranteed). So what we have here is a front month vol after earnings that is more expensive than an earnings month. Hmm...

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).



Most notable here is the giant drop stock pop on 10-11-2010 up to a high of $25.05. The news was:
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HRBN said Chairman and Chief Executive Tianfu Yang and a fund advised by Baring Private Equity Asia Group Ltd. proposed to buy the shares of the company they don't already own for $24 each.
Source: MarketWatch, by Robert Daniel
---

Then, in mid Nov 2010, the stock dropped all the way down to a low below $15. On the vol side, we can see IV30™ peaked over 100 and while still elevated, has dropped off of earnings down to the mid 80's.


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



Potential Trades to Analyze
1. Calendar spread Apr and Jun.
Sell the Apr 17.50 straddle @ $3.00 (ish) or ~ 80 vol.
Buy the Jun 17.5 straddle for $5.30 (ish) or ~ 77 vol.
Pay $2.30 to own Jun against Apr. Some notes here:
a. This trade is long vega, so if this elevated vol collapses, the trade could stand a large loss.
b. If the stock moves back to the "takeover" price in Apr, this trade loses.

2. Calendar spread Apr and May.
Sell the Apr 17.50 straddle @ $3.00 (ish) or ~ 80 vol.
Buy the May 17.5 straddle for $4.70 (ish) or ~ 80 vol.
Pay $1.70 to own May against Apr. The risk here is similar to the one above with the obvious change in the month being bought.

3. Totally different:
If the vol in this stock should be elevated given the surrounding uncertainty, maybe buying the Apr straddle now that the vol has come down a bit after earnings, is worth examining.

This is trade analysis, not a recommendation.

Legal Stuff:
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ACE - Bullish Earnings Bet

ACE is trading $61.83, up 1.6% with IV30™ down 9.6%. The LIVEVOL® Pro Summary is below.



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ACE is a global insurance and reinsurance organization, serving the needs of commercial and individual customers in more than 170 countries.

This is just a quick note on some order flow in an earnings month.

The company has traded 6,885 contracts on total daily average option volume of just 619. The largest trade, which accounted for 6,000 contracts, was a May 55/65 risk reversal (sell puts/ buy calls). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size). The largest OI in front two months is just 2,724, so this is a large order. I don't really see any large stock orders at the time of this trade and the total stock volume is actually below average, so this feels like it might be unhedged (unless it's a hedge in and of itself to a short stock position).



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



The skew has maintained a pretty normal shape -- it would have been nice if the upside in May was bid as that might have been interesting to examine as a strike to spread around.

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 vol is still elevated to the short-term and long-term trend in the stock (realized movement), but IV30™ is dipping after it jumped on general unrest in the world.

As I mentioned at the top, this is a large trade (~10x daily average volume) in a month when earnings are due out. It might be worth writing this one down and seeing if any more large one sided order flow (bullish in this case) continues to stream in on the earnings month.

This is trade analysis, not a recommendation.

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Energy XXI (EXXI) - Elevated Vol

EXXI is trading $31.67, up 2.0% with IV30™ down 6.2%. The LIVEVOL™ Pro Summary is below.



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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

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

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=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 EXXI 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™: 49.05
HV20: 36.42
HV180: 40.31

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock.

Let's check out the skew.



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



Possible Trades to Analyze
1. To analyze selling the vol:
Sell the Apr 31/32 strangle @ $2.60.
Buy the Apr 29/34 strangle for $1.30.
Collect $1.30 to risk $0.70 and bet on a small move in EXXI to Apr expo.

2. The opposite view is also worth examining; specifically if the vol is elevated, maybe the stock is going to move:
Buy the Apr 31/32 strangle for $2.80 and bet on a stock move (or vol near-term increase).

This is trade analysis, not a recommendation.

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