* UPDATE: SPY - Close the Trade

** UPDATE

Earlier this morning we looked at this trade:
Opening Trade
Buy SPY Aug 6 Weekly 110 straddle for $2.88
Sell SPY Jul 30 Weekly 109/111 strangle @$0.32
Total Debit: $2.56

The blog is available Here.

The updated Options Tab is included (click to enlarge).



The strangle is going to expire worthless and now we can just sell the straddle back out.

Closing Trade
Not as good as I had hoped as vol fell off a table in the last hour (boo!).
Sell SPY Aug 6 110 straddle @$2.63. Let the strangle expire worthless (I hope). On a $2.56 cost basis, that's $0.07 profit in one day, or 2.7% (boo!).

I'll look to do more weekly expiration trade analysis next week as well. This is trade analysis, not a recommendation.

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S&P 500 (SPY) - Weekly Vol Sales Trade

SPY is trading $109.95, with IV30™ up 4.9%. The LIVEVOL™ Pro Summary is below.



I want to try a weekly to weekly spread here and sell the elevated one day vol. The Options Tab (click to enlarge) is included.



I want to see how an Aug 6 weekly 110 straddle purchase for $1.42 + $1.46 = $2.88 does while selling the Jul 30 weekly 109/11 strangle @ $0.20 + $0.12 = $0.32. This gives a total debit of $2.88 - $0.32 = $2.56.

If the strangle expires worthless, on Monday I would sell the straddle or at the very least the strangle. I'm essentially looking for a quick turn on this trade and if I have to hold it, to sell multiple options per each long option.

I did something similar last week on my posts at thestreet.com and it worked out nicely. Let's see if this type of trade works again this week.

This is trade analysis, not a recommendation.

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Arena Pharma (ARNA) - Big Bio-tech Vol Yields Trade

ARNA is trading $6.45 with IV30™ up 3.5%. The LIVEVOL™ Pro Summary is below.



Thanks to Frank Fahey for getting this stock on my radar.

This is a high risk pharma/bio-tech with a decision due out in Sep from what the options seem to indicate. Aug IV is 93 while Sep IV is 220.

The Options Tab (click to enlarge) illustrates a nice trade, though it is several legs so don't let commissions eat this one up.



Trade Stats
Sep 2 puts: Buy 1 for $0.30
Sep 4 puts: Sell 2 @0.95
Sep 7 puts: Buy 1 for $2.30
---
Sep 5 calls: Buy 1 for $2.80
Sep 8 calls: Sell 2 @ $1.35
Sep 9 calls: Buy 1 for $0.95

Why would anyone do this ridiculous trade? Check out the Pnl Chart (click to enlarge):



Max Gain: $125.00
Max Loss: $75.00
The trade makes money if ARNA stays above $2.75 at Sep. expiration. Note that the Sep 12.5 calls are $0.20 bid; which is wild (but not necessarily a mistake).

Note that the dip on the upside PnL is between $5 and $7. This is done on purpose. It would reflect a belief that ARNA will be moving away from its current price ($6.50).

Also note that it is entirely possible that ARNA goes below the $2.75 level. I can't say I love this trade, but I thought some of you might enjoy it. If you're more risk hungry, you can sell some Aug and hope the announcement doesn't come out then - that will fund this Sep trade and turn it into an arb (after Aug). Risky though... ha ha.

Some alternatives to this kooky trade involve buying the meat (ATM) and selling the wings. Whatever you do, please do not be net short contracts; no naked sales on bio-techs allowed! For that matter, don't be too naked long contracts either. Spreads yielding 1:1 long:short contracts are the safest plays here.

This is trade analysis, not a recommendation.

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* UPDATE: Avon Products (AVP) - Earnings Results

* UPDATE
This is an update to the blog posted yesterday Avon Products (AVP) - Earnings Preview and Trade.

AVP is trading $31.00 with IV30™ down 19.1% after earnings. The LIVEVOL™ Pro Summary is below.



In yesterday's article I noted that:
AVP has followed a consistent pattern for six out of the last seven earnings starting with the 10-30-2008 cycle and ending with the last earnings cycle on 4-30-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner six times and breakeven once.

AVP had earnings last night, the Options Tab today (after earnings) is included (click to enlarge).



We can see the ATM straddle is now worth $1.95 (we can probably buy it back for $2.00). Yesterday, the straddle was worth $2.20. The one day trade would have turned a 9% profit ex-commissions. The return is not quite what we hoped, but it's a win nonetheless. If you bought the strangle to protect, you can sell out the calls at$0.15 (or $0.10) and take only a $0.05 (or $0.10) loss on that protection (puts are $0.00 bid), so your gain is cut a little bit for the hedge. The updated earnings and dividends stats are included (click to enlarge).



This is trade analysis, not a recommendation.

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Range Resources (RRC) - Aug Options Trade; Skew Bends

RRC is trading $38.31, up 2.9% with IV30™ 13.3%. The LIVEVOL™ Pro Summary is below.



Mike Bristow, head broker for Vtrader Group, got my attention on this one.

The company has traded over 41,000 options on total daily average option volume of just 4,207. The action is fast and furious in the Aug options. A 35/37.5 strangle sale (from what I can tell), 14,000+ Aug 40 calls and nearly 7,000 41 and 42.5 upside calls (combined volume). 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 strangle sale is opening (compare OI to trade size). The Aug 40's are opening as well. The Aug 41 and 42.5 are ambiguous.



The Aug upside look like sales on the 41 and 42.5 sales. The Aug 40 calls look like purchases for size. The skew is bent severely up from this order flow. The Aug 35 line is bent down b/c of the strangle sale. In total it leaves a great skew for hunting.

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



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 hard stock drop of late and the gap down from earnings yesterday of ~$3. The IV30™ has now jumped past the HV20™.

This is trade analysis, not a recommendation.

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Avon Products (AVP) - Earnings Preview and Trade

AVP is trading $29.97 with earnings BMO tomorrow. The LIVEVOL™ Pro Summary is below.



With a nice little win on the BRCM earnings straddle play yesterday and today, we'll try again on AVP. The Options Tab snap (click to enlarge) demonstrates a couple of things:



1) The front month ATM straddle is worth ~$2.20.
2) The front month vol (38) is 5 points above the second month (33) due to earnings vol.

AVP has followed a consistent pattern for six out of the last seven earnings starting with the 10-30-2008 cycle and ending with the last earnings cycle on 4-30-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner six times and breakeven once. The Earnings & Dividends Tab for those cycles is included with the relevant values highlighted (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.

The trade statistics for the straddle sale and purchase a day later are included (click to enlarge).



We can see the average win is 23% in one day. One BIG note of caution, though it isn't shown here, on the 7-30-2008 cycle (right before all hell broke loose), the straddle went from $3.60 the day before to $9.60 the day after on a huge earnings move. That's a 162% loss in one day.

If you want to try this strategy, I think an Aug 33 call purchase for $0.10 and an Aug 25 put purchase for $0.10 may be in order to protect against "catastrophic loss." I do like the fact that HV90™ is 32 with the straddle sale closer to 37 vol.

This is trade analysis, not a recommendation.

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** UPDATE: BRCM - Earnings Results

* UPDATE
This is an update to the blog posted yesterday Broadcom (BRCM) - Earnings Preview; Vol Pattern and Straddle Sale .

BRCM is trading $37.99 with IV30™ down 11.6% after earnings. The LIVEVOL™ Pro Summary is below.



In yesterday's article I noted that:
BRCM has followed a consistent pattern for seven out of the last eight earnings starting with the 10-21-2008 cycle and ending with the last earnings cycle on 4-27-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner seven times.

BRCM had earnings last night, the Options Tab today (after earnings) is included (click to enlarge).



We can see the ATM straddle is now worth $2.54. Yesterday, the straddle was worth $3.31. The one day trade would have turned a 23% profit ex-commissions. The updated earnings and dividends stats are included (click to enlarge).



If you sold the straddle at the close the value was $3.01, so the gain is 18%. Either way, the result is right around our expectation.


This is trade analysis, not a recommendation.

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Xerox (XRX) - Action in Sep on Stock Rebound

** CORRECTION:

The trade yesterday was on a 67 delta, so the stock wasn't the 99,000 shares but rather it was 1,005,000 shares (both prints crossed at around the same time, I blew it (I chose the wrong one - I was off by a factor of 10).

My apologies.

**

XRX is trading $9.54 with IV30™ up 1.3%. The LIVEVOL™ Pro Summary is below.



The company has traded over 40,000 options on total daily average option volume of just 8,680. 30,000 contracts traded in one trade; a Sep 9/10 risk reversal (sell puts/buy calls) on a 67 delta against $9.65 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 both the calls and the puts are opening (volume >> OI).



Trade Stats
Sell 15,000 Sep 9 puts @ $0.25
Buy 15,000 Sep 10 calls for $0.35
Sell 1,000,5000 XRX shares at $9.65

The PnL chart is included (click to enlarge).



This trade creates a net debit of $150,000. At expiration it makes the most money above $11 (ish). It looks for a possible pin in the $9 range (that's the peak in the PnL chart).

The 52 wk range for XRX is [$7.19,$11.72]. The PnL at those levels is:
PnL($7.19) = -$392,700
PnL($11.72) = $$349,650

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



This is sort of the Rodney Dangerfield of skews; "No respect." You can see The front three months have almost identical skews and there is no bend upward for the 10 strike purchases or a significant bend downward for the 9 strike sales.

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 HV20™ is now well above the IV30™ as XRX stock has rebounded hard from its low a month ago. The next earnings cycle is projected for Oct (or even Nov), so this trade does not worry about that.

This is trade analysis, not a recommendation.

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Broadcom (BRCM) - Earnings Preview; Vol Pattern and Straddle Sale

BRCM is trading $37.91 with IV30™ up 4.5% and earnings AMC today. The LIVEVOL™ Pro Summary is below.



The Options Tab snap (click to enlarge) demonstrates a couple of things:



1) The front month ATM straddle is worth ~$3.31.
2) The front month vol (43.16) is 5 points above the second month (38.23) because of earnings vol.

The HV90™ (longish term historical movement of the stock) is ~36, so the 43 vol in the front month is elevated.

BRCM has followed a consistent pattern for seven out of the last eight earnings starting with the 10-21-2008 cycle and ending with the last earnings cycle on 4-27-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner seven times. The Earnings & Dividends Tab for those cycles is included with the relevant values highlighted (click to enlarge).





What we're lookin' at:
(1) The top ROW is BRCM 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.

The trade statistics for the straddle sale and purchase a day later are included (click to enlarge).



We can see that the one loser was very small ($0.02). On average it's a 21% one day win.

Finally, the Skew Tab snap (click to enlarge) illustrates high elevated the front month vol and skew are relative to the other months.



This is trade analysis, not a recommendation.

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Ventas (VTR) - Earnings Order Flow

VTR is trading $51.31, up 1.5%. The LIVEVOL™ Pro Summary is below.



I have posted twice on this company; the most recent just a few weeks ago. UPDATE: VTR (Ventas) - Orderflow Winner Trades Again; Same Strikes, Different Side

In the above blog, someone got short delta by selling calls and buying puts. Today, it's more of the same, but with put spreads.

The company has traded over 17,000 options on total daily average option volume of just 554. All but 341 contracts have been puts. The largest trade, accounting for 17,000 contracts was 8,500 Aug 40/50 put spread purchases on a 31.25 delta using $51.37 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 long puts (Aug 50) are opening (compare OI to trade size). You can also see that Aug vol is about the same as the other months even though earnings are in this cycle (a vol event).



Trade Stats
Buy 8,500 Aug 50 puts for $1.10
Sell 8,500 Aug 40 puts @ $0.05
Buy 265,625 shares for $51.37

The PnL chart is included (click to enlarge).



The trade makes $4,587,344 at $40 and loses $1,256,406 at $50.

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



You can see the ATM vol in Nov is above Aug.

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 price has just breached the $50 level.

This is trade analysis, not a recommendation.

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Seattle Genetics (SGEN) - Drug Trial Vol Pops in Dec; Risk Reversal Trades

SGEN closed at $12.48, up 2.8%. Earnings are due out 7-27-2010 AMC. The LIVEVOL™ Pro Summary is below.



The company traded over 8,000 options on total daily average option volume of just 435. The action was in the Dec options; a Dec 10/15 risk reversal (buy puts/sell calls) 4,000x. 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 mostly opening (compare OI to trade size). We can also see that Dec vol is 93 compared to Aug (63) and Sep (72).



On Tuesday, SGEN announced the start to a new pancreatic cancer drug trial. I haven't verified it, but it seems like there is an expectation for results out in the Dec options cycle. This bet is bearish.

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



This is a great view of how much higher Dec vol is relative to Sep indicating an expectation that a vol event will occur in the Dec cycle, but not in the Sep cycle. I've highlighted the strikes that were traded.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV90™ - green vs HV90™ - purple). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



SGEN has traded in a tight range recently and is up from the $9 range six months ago. Note the difference int he IV90™ which is ~85 (green line in the bottom chart) compared to the HV90™ which is ~51 (purple line in the bottom chart).

This is trade analysis, not a recommendation.

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Forest Labs (FRX) - Risk Reversal Trades in Sep

FRX is trading $28.28, with IV30™ up 2.7% today. The LIVEVOL™ Pro Summary is below.



The company has traded over 13,000 options on total daily average option volume of just 4,261. 12,000 of those contracts came on one trade; a Sep 26/31 risk reversal (sell puts/buy calls) against $28.22 stock on a 39 delta. Mike Bristow, head of the brokerage for the Vtrader Group, gave me the 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 opening (compare OI to trade size). The puts are harder to tell at first glance. It turns out that entire 5,000 OI traded two days ago on the 21st, and they are short, so the trade today will increase that OI.



Trade Stats
Buy 6,000 Sep 31 calls for $0.30
Sell 6,000 Sep 26 puts @ $0.30
Sell 234,000 shares of FRX stock @ $28.22

The PnL chart for this trade is included (click to enlarge).



The trade makes money at Sep expo if the stock is in the $26 range or above the $33 range. Max loss is at $31 (the long strike).

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



The skew looks pretty normal; though Sep vol is well below Nov vol. There should be an earnings release in Oct, so that makes sense. You can see this trade sells higher vol and buys lower.

Finally, the Charts Tab (12 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 that IV30™ is above the HV20™ and has been for the last month. Two earnings cycles ago so saw a gap down in stock price, but the last cycle a couple of days ago was pretty muted. IV60™ and HV60™ are almost equal (27.00 to 26.15 respectively). A vol sale in August seems reasonable, but this is a known takeover target in a risky industry, so my best play on this one is no trade at all unless you have conviction.

This is trade analysis, not a recommendation.

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