Steve Madden (SHOO) - Skew Scalper

SHOO is trading 57.84 up $2.21 with IV30™ up 10% and earnings next week (Tuesday BMO). The LIVEVOL™ Pro Summary is below.



The company has traded over 4,600 options today on total daily average option volume of just 330 (or 14x daily average) . The largest trade was a May 55/65 risk reversal (sell calls / buy puts) paying $ 0.80. 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 and puts are opening - volume is well above the open interest.



The Skew tab snap shows a nice little trade - selling upside calls for the same vol as the downside puts - something you don't usually get to do. I've highlighted the relevant strikes (click to enlarge).



This is actually a fairly common trade - a stock runs up, vol goes up with it into earnings making puts "cheap" relative to calls (in this case when call iv = put iv on the skew chart - that's "cheap"). To read why OTM puts are usually more expensive then OTM calls (i.e. why skew exists) you can go Click Here.

If the trader is long the stock they have bought downside protection for "cheap" while selling covered calls for "expensive." Not bad and possibly something to think about over the weekend.

This is trade analysis, not a recommendation.

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Goldman Sachs (GS) - What The Option Order Flow Predicts

GS is trading 145.83, down $14.41 with IV30™ up 43.9%. The LIVEVOL™ Pro Summary is below.



The company has traded over 380,000 options in the first three hours on total daily average option volume of 121,129. The Stats Tab snapshot is included (click image to enlarge).



Note that the net deltas are negative and the net premium is positive. So, in English - the option order flow is buying options and getting short deltas - i.e. put buying. You can see the vol is up today and the stock is down - so the option order flow is in synchrony with the stock.

The Options Tab for May (click to enlarge) uncovers some interesting things.



Note that the down side puts are worth about $1 all the way down to the 115 strike. Also, note that the 85 strike puts are worth ~$0.20. That's crazy! Not b/c they're bid, but because it actually sounds "possible." But there's more...

Now let's look at the Jan 2011 downside (click to enlarge).



The "bankruptcy" puts - i.e. the 2.5, 5, 7.5, 10 strikes are all bid in Jan. The 55 strike puts are worth ~$1.00. The market is pricing the possibility of a total disintegration of GS (but still with very low probability).

The Skew Tab (click to enlarge) is useful too.



The skew actually looks kind of "normal." Sure, the down side is bid, but that's the usual case. The upside in May is actually bent up - there is some action in the upside calls betting on a quick reversal in market sentiment toward GS. The back months show less (or no) bend upward - those options are cheaper relative to vol.

Conclusion
1) The option order flow in GS is active (should be ~ 8x average by the close).
2) The oder flow is getting short deltas
3) The order flow is buying options - and therefore helping to spike the vol.
4) Vol is up also because the uncertainty has increased dramatically with the criminal charges and the fact that the SEC seems like they won't just walk away this time (time will tell).
5) The front month upside vol is bent up - people are betting on a quick recovery - the back months do not show the same optimism. You might think of this as a bet that if things get better, it'll happen soon - if not soon, then not for a while or not as sharp.

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Option Market Prediction: Big Movement!

This is trade analysis, not a recommendation.

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Tidewater (TDW) - Call Order Flow Pushes Stock and Vol Up

TDW is trading 55.21 up $2.17 with IV30™ up 13.4%. The LIVEVOL™ Pro Summary is below.



The company has traded 14 times avg volume in just the first hour - 5,500 options in the first hour on total daily average option volume of just 397. All but 810 contracts have been calls for a 6:1 call:put ratio. The largest trade has been the May 55 calls - purchases for $2.10. AMEX marked these as spreads, but I don't see that. 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; OI is just 706 versus first hour volume of 3,585. Further we can see the IV per month jumping even in the months where there is limited trading. Note that earnings are scheduled for the end of this options cycle - so the May options do have a known vol event.



The Skew Tab snap as of right now shows a couple things (click to enlarge).



1) The front month (red) is considerably higher than the back months (40 vs. 34,32 and 31 respectively).
2) The skew hasn't really bent up. I've highlighted the 55 line - note that with the stock pop those are actually in the money now. The 60 line still bends down. To read why sklew exists and what it "normally" does you can Click Here.

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 thes stock has jumped for a low of $43.52 on 2-25-2010 to over $55 today or about 28% in two months. If the stock stays strong with consistent order flow - this may one to watch right before earnings.

This is trade analysis, not a recommendation.

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Harman (HAR) - Huge Drop on Earnings - Order Flow Tip?

HAR is trading 41.19 down more than $10 off of earnings. The LIVEVOL™ Pro Summary is below.



The daily averages for option volume are included (click to enlarge).



I hate to do this twice in one day, but...

Yesterday the company traded 3,631 options - which makes sense as it was the day before earnings... But, check this out (click to enlarge the Time & Sales).



Starting 15 minutes from the close 2,531 puts were purchased. That's 5x daily average put volume and even for the day of earnings - it was more than double the prior 6 hours trading.

The May 50 puts jumped from OI of just 311 to 2,123 yesterday. You can see the Level 2 snap (click to enlarge) - blue is the Open Interest.



The Optins Tab snap illustrates that the May 50 puts OI is the largest in the entire chain - and it accumulated in one day (click to enlarge).



Note also that the Mar 42.5 and 37.5 puts are the other largest open interest lines. Feels like someone knew that bad news was on the horizon... Or not?...

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Pacific Capital (PCBC) - Insider Trading Tips Stock Collapse?

PCBC is trading 2.08 down 49% on earnings. The LIVEVOL™ Pro Summary is below.



I have to thank my friend Jeff Kearns, at the BLOOMBERG/ NEWSROOM, for this one. He was very fast to identify the unusual trading and nice enough to interview me in his article.

The Options Tab (click to enlarge) illustrates clearly that the OI in the May puts (2,317) is not only larger than any other line - it's more than double any other line. There's not a single strike with OI above 1,000.



The Level 2 pop-out shows that the OI accumulated in a single day: 4-23-2010 with 2,325 trading.



Is 2,300 unusual for this company... Um, yeah... The company averages just 172 options trading a day - a small snap of the Stats Tab is included. Note the avg OI in the entire chain (even with the trades) is still half of that single trade.



Finally, the Time & Sales Tab for 4-23-2010 and those puts is included (click to enlarge).



You can see the puts trading $1.00 against $0.60 x $1.05; these were purchases, and someone paid up...

For what it's worth, I see the largest shareholder has 265,00 shares and then the next largest has just 53,000. The 2,300 puts protect 230,000 shares. So you could make an argument it's a hedge but then again... Wouldn't the largest shareholder have inside information. Also, this is a $1.00 insurance versus what was a $4 stock. That's not a hedge - that's a bet (in my opinion).

This is trade analysis, not a recommendation.

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Avon (AVP) - Earnings Trading Patterns

AVP is trading 32.89 with earnings BMO tomorrow. The LIVEVOL™ Pro Summary is below.



This is another one with earnings coming up (tomorrow before the bell) so I looked at the trends (vol). For this one also, it turns out that selling the front month ATM straddle the day before earnings and buying it back the day after has won 5/6 times and one push. But... the one loss was the largest absolute move of all pushing the total pnl to a loss. The stats are included (click to enlarge).



There was a massive move in the underlying on 7-30-2008. If we take out the earnings cycle in 7-30-2008 and just look at the most recent six - we see 5/5 winners and one push averaging a very nice 23% one day gain (ex-commsions and slippage)



The Options Tab demonstrates the current prices - the ATM front straddle has fair value of ~ $2.60.



The Earnings & Dividends Tab for the last 7 quarters are included. First the most recent four quarters (3/3 wins with 1 push; click to enlarge):



What we're lookin' at:
(1) The top ROW is AVP stock price 5 trading days before earnings through 5 trading days after.
(2) The second ROW are the front 2 month ATM straddles for the same period - focus on purple - the front month.
(3) The third ROW is the implied vol for those straddles - focus on the red - the front month. NOTE: The red line always collapses after earnings - this is called the vol crush after earnings.

I've highlighted in green the straddle the day before and the day after earnings for each cycle.

And then the three prior to that (2 wins/1 big loss click to enlarge).



This is an interesting one as a huge move is not only possible (it is for all stocks) but actually realized...

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Aetna (AET) - Trading Earnings Patterns

AET is trading 30.59 with earnings BMO tomorrow. The LIVEVOL™ Pro Summary is below.



With earnings coming up I looked at the trends (vol). It turns out that selling the front month ATM straddle the day before earnings and buying it back the day after has won 6/7 times. Further, the one loss was the smallest absolute move of all. The stats are included (click to enlarge).



The Options Tab demonstrates the current prices - the ATM front straddle has fair value of ~ $2.49 with nice and tight/liquid markets.



The Earnings & Dividends Tab for the last 7 quarters are included. First the most recent three quarters (all wins; click to enlarge):



What we're lookin' at:
(1) The top ROW is AET stock price 5 trading days before earnings through 5 trading days after.
(2) The second ROW are the front 2 month ATM straddles for the same period - focus on purple - the front month.
(3) The third ROW is the implied vol for those straddles - focus on the red - the front month. NOTE: The red line always collapses after earnings - this is called the vol crush after earnings.

And then the four prior to that (3 wins/1 loss click to enlarge).



One word of caution - AET is an insurer - so you never know about the crazy news...

This is trade analysis, not a recommendation.

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DUK - Earnings Trades and Cheap Vol Play

DUK is trading 16.67 up 4.1% today with vol up 20%. The company has earnings next week. The LIVEVOL™ Pro Summary is below.



The company has traded over 20,000 options in the first two and a half hours on total daily average option volume of just 1,760. Calls are trading on a 5:1 ratio to puts. 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 action is:
May 17 calls (purchases), Jul 17 calls (purchases), May 16 puts (purchases), Jun 17 calls (purchases) respectively. In other words, people are swooping up the vol pre-earnings. Based on volume relative to OI (open interest) - the May 17 calls are opening as are the Jun 17 calls. From what I could tell witha bit of research - the May 16 puts are long open interest (these are double downs). I found the same for the Jul 17 calls.



DUK has moved nicely today as vol has moved up into earnings next week. The May 16/17 strangle (buy May 16 puts, buy May 17 calls) for $0.30 looks like an interesting trade. Max loss is $0.30. The strangle goes up in value if:
1) Vol continues to rise into (pre) earnings
2) The stock moves above $17.30 or below $15.70 by expo.

If (1) occurred - I'd probably sell it back out before the earnings vol crush...

I'm not usually a big fan of buying strangles - especially into earnings, but this one is compelling given its cost. A quick (very quick) analysis of the Earnings & Dividends Tab for DUK illustrates that generally the stock doesn't do much - front spreading (selling) is more a winner than back spreading (buying). i.e. In general, selling the earnings vol (pre-earnings) and buying it back then next day (after earnings) is a winner.... How was that for contradictory?...

I like the $0.30 purchase and the possibility of (1) above... But if it doesn't work, then I change my mind...

This is trade analysis, not a recommendation.

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Rambus (RMBS) - Trading a Lawsuit

RMBS is trading 24.26 with IV30™ at 52. The LIVEVOL™ Pro Summary is below.



The company has been, and is in the throws of a huge lawsuit. Originally it was with three companies - Micron (MU), Hynix Semiconductor and Samsung. Rambus settled with Samsung in Jan of this year - details below:

Jan 18, 2010
Click Here for Reference.
Samsung Electronics Co. agreed to pay as much as $900 million over five years to Rambus
Inc. as part of a deal to settle some high-profile litigation focusing on memory chips.

You can see the pop in the stock after (click to enlarge):



Barrons came out with a great story relaying what's at stake and possible outcomes.
Click Here for Reference.
Rambus (NASDAQ: RMBS) has recently settled a patent case with Samsung. The company is also currently involved in separate lawsuits worth $12 billion against Micron Technology
(NASDAQ: MU) and Hynix Semiconductor. Investors are bullish about the outcome of these
lawsuits.

According to a report released by Barron’s, the stock is expected to grow by 100% in the
case of a positive outcome. However, the chipmaker has a bleak scenario if its lawsuits
fail. Harold Hughes, CEO of Rambus, said, “We do not intend to give Hynix or Micron a deal comparable to the one we gave to Samsung."

Yup - the stock could go to "zero" or double if there are "extreme" judgements. Let's take a look at the Skew Chart Tab first (click to enlarge).



A few things to notice:
(1) The front month (red) ATM straddle is way below the other months. This implies that the options market is pricing a decision after this expo.

(2) The front month skew is parabolic and as expensive (or more) as the other months. This happens when the possibility of an extreme event still exists - so extreme options just don't go down until they expire worthless - sort of static prices.

(3) There doesn't seem to be a particular lean one way or the other in the skew - i.e. no "market leans" as to the outcome.

(4) August skew (green) is flat relative to May (red) and Jun (yellow).

The Options Tab snap (click to enlarge) also demonstrates some cool stuff.



Just in general - the vol looks pretty low for such a huge event. Jun ATM straddle is trading on 64 vol - or ~$4.55 fair value. Feels kinda cheap. Keep in mind, this case has been heard before and there have been all sort of delays... But still...

You can see the vol by month below (click to enlarge).



You can see all the back months hover around the low 60's - so it's not just a "delay" that's priced. If it were, the vols would increase over time. It looks like maybe a settlement or other type of non "huge" news is priced in.

A Few Ways to Analyze Some Trades
1) One trading approach could be to sell the front month ATM straddle @ $2.18 (ish) with the hope that the event doesn't come out this cycle (ending 5-21-2010). Buy the back month ATM straddle for ~$4.60 to cover for a total debit of $2.42.

At expo you'll probably have a straddle worth more than $2.42 in the back and you can sell it, or spread it off, or just hold it in anticipation of a move.

Of course - you would be selling the lowest vol possible in the entire chain and buying the most expensive ATM straddle by doing that - so that might not taste so good.

I think there are a bunch of similar strategies where you could sell better vol (but in the front) and cover up (please cover up) with cheaper else where. There is some action expected in the international courts (I think) on 5-24-2010 - just be aware as this is an international story.

2) Another is simply to buy some straddles in the further out months. I mean, if this thing is supposed to move huge - 60 vol feels cheap. You can spread that straddle off with some expensive wings.

3) Or the total opposite... Sell the juice in the middle and buy the wings to protect. The Skew tab shows the third month (August - in green) wings aren't very expensive relative to the meat - it's sort of flattish in shape relative to May and Jun. If you think this is going to be a bunch of nothing - as it has been before - maybe this approach is better.

4) Always have this one... Just watch and try to learn. There's noting wrong with sitting it out.

This is trade analysis, not a recommendation.

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Administaff (ASF) - Sneaky Call Buyer

ASF is trading 22.35 with IV30™ up 26.1% points to 51. The LIVEVOL™ Pro Summary is below.




The company has traded over 5,500 options today on total daily average volume of just 231. All but 23 contracts have been calls for a 242:1 call:put ratio. The Stats Tab and Day's biggest trades snaps are included (click to enlarge).





The Options Tab illustrates that the action is the May 25 calls - trading over 4600x on 492 open interest - these are opening trades (mostly purchases). Notice that other than one 1,100 print, the rest of the trades are small... sh...



The Skew Tab snap is included. You can see the front month upside bent upward from the call purchases. If you want to get long, maybe the back months look better at this point. Keep in mind, earnings are a week away so vol could go higher.



This is trade analysis, not a recommendation.

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