Toll Brothes (TOL) - Vol Seller in June

TOL is trading 18.68. The LIVEVOL™ Pro Summary is below.



The company has traded over 19,000 options today in the first hour on total daily average option volume of 6,422. The largest trade was a Jun 18 straddle sale 9,258x (18,516 contracts) @ 3.10. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The straddle is profitable at Jun expo if TOL stock is between 14.90 and 21.10. If not held to expo, the straddle wins to vol decreases (or vol stays the same, stocks stays the same and time passes - i.e. time decay).

The bottom portion of the Charts Tab snapshot (click to enlarge) illustrates the IV90™ (hypothetical 90 day option) vs. HV90™ (90 day actual vol of the stock) over 6 months. Purple is HV, green is IV. The top portion illustrates the stock movement over 6 months. The yellow shaded area charts the vol difference.



Note that IV90™ is below the HV90™ and is relatively low to the last six months. i.e. this looks like a cheap sale rather than an expensive one. Note also TOL had earnings a couple of days ago - so a decent projection is that the Jun options include an earnings cycle (vol event).

Finally the Skew Tab snapshot is included (click to enlarge). Note that Jun options are more expensive (higher vol) than the front 2 months (which makes sense if you buy into the earnings projection). You can also see the Options Tab snap embedded in the bottom reflecting the actual monthly vols and that June is above the front two months.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month



My initial reaction to this trade is sort of luke warm. Seems like the vol isn't a great sale - or at least not an obvious sale. It looks like the downside is safe(ish) given the stock movement over the last 6 months but the upside could be vulnerable (of course the past doesn't necessarily mean anything - but it's all we have). A couple saving graces in my mind for this trade:

(1) The coming months are historically slowish - so a simple time decay play could be smart (which this is).
(2) Basically every stock looked like this about a year ago - i.e. every IV looked like a purchases (low) relative to HV but in fact the opposite was true. It turned out everything was a sale. Then again, a year ago VIX was 50.

This is a bet of less stock movement moving forward than there was in the past 6 months ---> lower vol. Max Gain = 9,258 x 100 x $3.10 = ~ $2.9 million.

This is trade analysis, not a recommendation.

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Atlas America (ATLS) - Bull Bets Are in on Risky

ATLS is trading 31.74 with IV30™ up 5%. The LIVEVOL™ Pro Summary is below.



The company has traded over 5,000 options today in the first 30 minutes on total daily average option volume of just 347. Yesterday the company traded over 10,000 contracts. Today essentially all the volume has been the Jun 35 calls purchases - yesterday, 5,000 were also purchased and funded with a 5,000 sale of Jun 30 puts. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab snapshot (click to enlarge) illustrates a few things:
(1) The Open Interest (OI) is by far the largest on the Jun 30 calls and Jun 35 puts. I don't see anything larger than 432 other than those two.
(2) The trades today are focused entirely on the calls thus far.



Yesterday the puts were sold @ $1.70 and the calls purchased for $1.50 - i.e. the trade was a credit naked short the downside and long the upside (this trade is called a "risk reversal" or just a "risky.") Today the calls are trading for 1.35 with the stock down.

The Skew Tab snap (click to enlarge) shows the front month (red) with a typically normal skew. The back months though have a remarkably flat shape. My guess is that this is a reaction to the order flow. You can read about "normal" option skew and why it exists by clicking HERE.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month



The Charts Tab for the underlying (one year) is included for completeness (click to enlarge).



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** UPDATE: Millipore (MIL) - Takeover Bid Leaked, Stock Jumps $30 then Drops - Options Trade

** UPDATE

You can read the original post BY CLICKING HERE.

MIL is trading 92.86 up almost $4. The LIVEVOL™ Pro Summary is below.



The original blog was kicked off by a singular report from Bloomberg that TMO was going to (or had already) bid $6 billion for MIL - the equivalent of ~ $107 stock price. There were no denials or confirmations. Stock went from $72 to $102 back to $87 and now to $94.

The news worthy of update today is that MIL confirms that they are evaluating strategic alternatives and they have confirmed engaging Goldman Sachs as its financial advisor. The stock is up $4 since yesterday. Click the news snap to enlarge.



The company is extraordinarily active again in options - over 25,000 options today in the first two hours on total daily average option volume of just 1,400. Further, 21,000+ calls have traded for a 5:1 call:put ratio. The Stats Tab is included (click either image to enlarge).



The Skew Tab snapshot is included (click to enlarge) for 2-19-10 (pre-news), yesterday and today.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month







Note going from yesterday to today that the upside skew is finally bending upward indicating higher probability placed in the upside (literally a skew in the probability measure). Also notice how the front two months vols (red and yellow) have come down closer to the back months today when compared to yesterday.

Finally, the Charts Tab snap is included again for completeness. The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference.



This seems like the most interesting trading/analytical opportunity in a takeover/event stock in a really long time - maybe since ROH.

This is trade analysis, not a recommendation.

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Arcelor Mittal (MT) - Call Accumulator Spiking OI

MT is trading 38.20. The LIVEVOL™ Pro Summary is below.



The company traded over 75,000 options yesterday on total daily average option volume of just 7,802. Further, 53,000+ Apr 40 calls traded on essentially no open interest. Looking at OI today, we see that ~ 36,000 opening purchases remain from that volume making it the largest OI on any line in any month. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge). Note the 7:1 call:put ratio for all trades.





The Options Tab snap (click to enlarge) illustrates the volume in the Apr 40 calls and the unusually large OI in the Mar 40 calls.



The Level II pop out for the Mar 40 calls is included (click to enlarge). You can see the rapid and recent increase in opening positions. That first big jump up was 2/19/2010 (i.e. Friday of last week). Combining the 36,000+ opening yesterday in Apr 40, and the now total 27,000+ OI in Mar 40, over 63,000 opening OTM calls have been purchased in 4 trading days. Other than those two lines, I don't see an OI larger than 5,500 on any one line (June 36 calls are 5k+). After that, I don't see anything over 3,000.



All this call buying is pushing the upside skew higher in the front (red) month (reverse skew). The Skew Tab snap is included (click to enlarge). To read what a "normal" skew looks like and why you can go HERE.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month



Finally, the Charts Tab snap is included (click to enlarge). The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference. Note that the stock is moving more than the implied indicates recently. Also note that MT recently hit its 52 wk high of 49.



This is trade analysis, not a recommendation.

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**UPDATE - Commercial Metals (CMC) - Takeover Rumors, Skew Bend

** UPDATE

CMC is trading 16.64 with vol up another 3 points. The LIVEVOL™ Pro Summary is below.



You can read the original post from yesterday by CLICKING HERE. The buzz started on this news:

"Commercial Metals returned an earlier call place to the company and confirmed that they have canceled their presentation at the Morgan Stanley Global Basic Materials Conf. In addition, CMC also confirmed that the cancellation was the result of personal issues being experienced by the presenter."

The company traded more than 40,000 options yesterday on average option volume of 1,378 (as of yesterday). The vol went from 45 to 61 and now has gone up to 63. Today the company has traded over 17,000 options in the first 3.5 hours (the daily average jumped to 2,146). Further, the call:put ratio is 6:1 with most action in the Mar 17.5 calls again. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).




The Options Tab (click to enlarge) illustrates the growing OI in that line. Most of the trades today have been purchases, that OI should increase tomorrow. Note also the distinctly higher vol in the front months relative to the back.



Yesterday we were able to see the upward bend in the skew for the OTM calls while it maintained its downward bend as well. This created a parabola like shape for the front month (see image below).

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month



The skew today is even more pronounced in that the downside for the front months is now flat (or flatter) while the upside remains bid.



This is a little surprising as takeover "rumors" have a tendency to come and go pretty quickly. The persistence is slightly unusual.

The Charts Tab snapshot is included (click to enlarge). Note the recent run up in stock price and vol (both historical and implied)



The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference.

If the payoffs were 1:1 (this is an obtuse hypothetical of course) this still seems like a sale to me (i.e. I would bet it doesn't happen). But - the odds aren't 1:1. In fact, if you assume a $25 price target (total random conjecture on my part), then look at the Mar 17.5 calls (where all the action is).

Buy 1 Mar 17.5 call for 0.80. Stock taken over ---> sell @ 7.5. The payoff is 7.5:0.8 i.e. ~ 9:1. Feels like a bunch of nothin' is gonna happen, but losing 1:9 - prob not a great bet to put on - at least not real big. Of course, a takeover could happen for less, more or after March so...

It is interesting to note that Mar vol is hgher than Apr even though earnings fall into Apr options. There is a slight implication of movement this month - i.e. a possible confirmation of a takeover, or a confirmation of not a takeover.

I haven't done a lot of research on this, so please, dig deeper if you are going to trade this one either way.

This is trade analysis, not a recommendation.

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Millipore (MIL) - Takeover Bid Leaked, Stock Jumps $30 then Drops - Options Trade

MIL is trading 88.19. The LIVEVOL™ Pro Summary is below.



The news yesterday was that Bloomberg reported that Thermo Fisher Scientific (TMO) mad a $6 billion bid for MIL. With 55.6 million shares outstanding for MIL that translates into ~$107 stock price for MIL. I haven't seen any other confirmations or denials as of this writing. Millipore has hired Goldman Sachs as its financial advisor after receiving the bid, a source told Bloomberg.



The stock jumped from Friday's close of 71.34 all the way to 102.91 yesterday only to finally close at 87.35.

The company has traded over 7,300 options today in the first 30 minutes (not a typo) on total daily average option volume of just 454. A few of the larger trades today are some of the weirdest I have ever seen. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





Note a few trades:
(1) Mar 85 puts sold @ 2.65 vs. 2.65 x 3.20 option market.
(2) Mar 85 calls bot for 6.50 vs. 5.20 x 6.50 option market.

Those are 0.55 and 1.30 wide markets trading on the NBBO. That's craziness. As I am writing this, the largest prints came in - Mar 95/Mar 100 1x2 call spread. I have confirmed this is a purchase of 1 Mar 95 call against a sale of 2 Mar 100 calls 1320 x 2640 even though the prices sort of look like a call stupid - sale/sale. That spread has max gain at 100, and begins to lose (on the upside) if the stock goes through 105. Selling 2 calls means upside risk if the stock really rips, but also makes the spread half as expensive (0.50 vs. 1.00).

Needless to say, the skew has changed dramatically from Friday to today. Both skew charts are inlcued (click to enlarge).

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month





The front two months have exploded past the back months (red and yellow are higher than green and blue). Also, the calls are now bid in the front two months (the line extends to the right). Note also that the downside is now bid in the front and the second month retains it's smirk (downside high vol).

The Charts Tab snapshot is included for completeness (click to enlarge). The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference.



This one may have some trading opportunities in it...

This is trade analysis, not a recommendation.

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Commercial Metals (CMC) - Takeover Rumors, Skew Bend

CMC is trading 16.81, up 11.4% today with vol up nearly 33% (15 points). The LIVEVOL™ Pro Summary is below.



I found CMC on the high option volume scan (option volume relative to each company's average). Click the image to enlarge it. You can see CMC has traded 1500%+ its daily average in just 2 hours.



The company has traded over 21,000 options today in the first two hours on total daily average option volume of just 1,378. Further, 19,600+ calls have traded for an 11:1 call:put ratio. The largest trades have been the Mar 17.5 calls (nearly 10,000). The Mar 15 calls (3,013) and Apr 17.5 calls (1,639) are also active. The Stats (Company) Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab snapshot (click to enlarge) is included. Note the trading volume is larger than OI (open interest) - these are substantially opening trades.



The news seems to be a takeover rumor. With the rumor comes a bend in the skew. You can see the CMC skew today and the SCHN skew (a "peer" with similar market cap). Click either image to enlarge.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month





Note the distinct upside bend to the CMC skew in the front month (red) as these options are bid up on the rumor. The second month (yellow) is also relatively flat to a standard skew. SCHN follows a more standard skew. For a full run down on why option skew exists you can read the blog HERE.

This is trade analysis, not a recommendation.

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UPDATE: SII & SLB - SLB takeover Bid Coming; How Options, Skews React

UPDATE: To read the original post: CLICK HERE.

SII is trading 40.00 up another 2.30 (6.1%) with vol down 3 points. SLB is trading 59.94, down 3.96. The LIVEVOL™ Pro Summaries are below.





So the intimation from SLB was realized this weekend and the standard "sell the acquirer and buy the acquired" was a winner. SII shareholders will receive 0.6966 shares of SLB for each share of SII. The deal is valued at about $11 billion. Click the image below to enlarge.



With SLB trading 59.94 ---> 0.6966*59.94 = 41.75 for each share of SII. So the spread right now (risk premium) is 1.75. As of the close Friday the spread was 1.75 + 2.30 + 3.96 = 7.56; so it has closed substantially on immediate stock moves. Some of the risk premium comes from the news this morning about an investigation into SII board's fulfillment of their fiduciary responsibility - read: "Did they really get enough per share or was there more to be had and they got some sweet deal?"

You can click the News Tab snapshot below to enlarge.


With the deal details out - we can now compare the skew as of Friday to the skew today in SII.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month





We can see a few things:
(1) The differences in the monthly vols have converged other than March (i.e. the lines sit nearly on top of each other).
(2) The upside kink in the front skew has now flattened (literally). This is normal, as the upside was unknown on Friday, now it is "more" known.
(3) The ATM (and near ATM) vols for Mar create a straight line rather than a standard downside smirk.

These are all expected changes in the skew. A few things to watch out for now.
(1) The convergence of SII share price to 0.6966*SLB i.e. convergence means more certainty, divergence means less.
(2) The vols should converge as well. If SII vol starts to diverge from SLB - it will most likely be to the upside indicating uncertainty. You'll see the skew shape change as well if this happens - likely creating a defined shape down if the deal could fall through, or up if a second bidder comes in.

The Options Tab and Charts Tab snapshots are included below for completeness. Click either to enlarge.





This is trade analysis, not a recommendation.

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