ECA (EnCana) - Vol Explodes, Front Month Calls in Play

ECA is trading $29.78, up 3.2% with IV30™ ripping up over 40%. The LIVEVOL™ Pro Summary is below.

Let's first look to the Tick Chart (click to enlarge). We can see an incredible turn up in the stock and vol (that indicates call buying) as of midday.

I don't really see any news other than some MLP tax treatment stuff, maybe...

The company has traded over 35,000 options on total daily average option volume of just 2,798. All but 2,911 contracts have been calls, yielding an 11:1 call:put ratio. The largest trades are Oct 30, 31 and 32 call purchases where 6,874, 17,177 and 1,209 calls have traded respectively. 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 mostly opening (compare OI to trade size). You can also see that Oct vol is up more than 19 points to nearly 47.

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

October is awesome. It's an entirely backwards skew, where the upside is bid and the the curve has a positive linear slope throughout. To read why skew exists and what "normal" skew looks like, you can read this: Option Skew: A Case Study.

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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

The stock has been relatively calm until just the last few days. We can also see the wild upturn in the IV30™ at the bottom shooting well past historical vol both short term and long term. Finally, check out the order flow at the very bottom - the green volume bar indicates opening order customer call buying.

This is trade analysis, not a recommendation.

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VIT (VanceInfo Technologies) - Time Spread and Vol Sale

VIT is trading $31.66, down 1.9% with IV30™ up 0.2%. The LIVEVOL™ Pro Summary is below.

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

Custom Scan Details
Stock Price >= 5
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 <=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 VIT Charts Tab is included (click to enlarge). 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:
IV30™: 62
HV20™: 52
HV180™: 42

So vol is elevated relative to historical short term and historical longer term. Finally, let's look to the Options Tab (click to enlarge).

We can see that the Oct 30 straddle is priced at about 64 vol or a $3.45 sale. The Nov 30 straddle is 62 vol (or $5.90 to purchase). I believe earnings are probably NOT in the Nov options cycle, but it's a coin flip.

Possible Trades to Analyze
1. Sell the Oct 30 straddle naked @ 3.45. Very risky and wins if VIT stock is in [$26.55, $33.45] on Oct expo.

2. Less risky, do the straddle sale and buy the Oct 25/35 strangle for $0.70 yielding a net credit of $2.75. This trade requires VIT stock to be in [$27.25, $32.75] (a tighter range than trade #1), but limits max loss to $225. The PnL chart for this trade is included (click to enlarge).

3. Another trade is to sell the 64 vol Oct straddle at $3.45 and buy the 62 vol Nov 30 straddle for $5.90 yielding a net debit of $2.45. If stock stays here and vol stays here, the trade on Monday after Oct expo. looks about like this:
Oct straddle sale @ $3.45 is worth $1.66 (parity) or a $1.79 gain.
Nov straddle decays to $5.03.
Net the trade "would be" worth $3.24 bought for $2.45 or a 24% gain.

This is trade analysis, not a recommendation.

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Kulicke & Soffa (KLIC) - Vol Trade and Calendar

KLIC is trading $6.22, down 1.1% with IV30™ up 5.6%. The LIVEVOL™ Pro Summary is below.

I found this stock using another real-time custom scan. This one hunts for low vols 60 days out.

Custom Scan Details
Stock Price >= $10
Average Option Volume >= 1,200
Industry isNot Bio-tech
IV60™ – HV60™ <= 8
HV180™ – IV60™ >=8

The goal with this scan is to identify mid-term implied vol (IV60™) that is depressed both to the recent mid-term 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 KLIC Charts Tab is included (click to enlarge). The top portion is the stock price, the bottom is the vol (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see the vols:
IV60™: 63.55
HV60™: 72
HV180™: 72

So, IV60™ is relatively low. Let's look to the Options Tab now (click to enlarge).



We can see the Nov 6 straddle is priced at 67 vol (ish), or can be purchased for about ~$1.20. We can also see that the Oct 6 straddle is priced at 71.5 vol. That could be sold @ ~$0.65. The next earnings cycle for KLIC could be in the Nov cyle, but it's more likely that it's after Nov (this is a coin flip, really).

Possible Trades to Analyze
1. Riskiest is a naked purchase of the Nov ATM straddle for $1.20. If held to expo, this requires KLIC to be outside of ($4.80, $7.20).

2. A different approach, buy the Nov straddle (67 vol) and sell the Oct straddle (71.5 vol) @ ~0.65 for a total debit of $0.55. This trade wants the stock to pin at $6 for Oct expo. A sale of the Nov straddle on the Monday after expo could be the closing trade.

This is trade analysis, not a recommendation.

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MSCI Hong Kong Index (EWH) - Put Buyer is Back; Bet on Uneasy Markets

EWH is trading $18.00 even, up 0.5% with IV30™ up 3.0%. The LIVEVOL™ Pro Summary is below.

I've written about the Hong Kong ETF twice within the recent past. You can read either one below:

9-17-2010: Hong Kong Index (EWH) - A Bet on Calm Broader Markets
6-30-2010: EWH (Hong Kong ETF) - Huge Bet on a Downturn in Hong Kong

Today, the put buyer is back....

The ETF has traded over 10,290 options on total daily average option volume of just 1,925. All but 20 (twenty!?) contracts have been puts yielding a 500:1 put:call ratio. Two trades made up the volume on simultaneous execution: 5,000 Mar'11 16 and Mar'11 17 puts were bought versus 310,000 shares or a 31 delta. Trading extraordinaries Cathy Clay and Kevin Nichols gave me color and alerted me to the trade. 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 puts are opening (compare OI to trade size). You can also see that Jan'11, Mar'11 and Jan'12 vol is well above Oct, Nov and Dec. Though it's a stretch to use the term with options, this would be considered "backwardation."



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



No real skew change which does surprise me. In stead, Mar'11 vol is up 0.3 points compared to Jan'12 which is down by the same amount.

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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see an awesome price jump over the last month. On the bottom we can see that the IV30™ is in fact still below the HV180™. Note also that it traded well above the HV180#&8482 for nearly four consecutive months prior.

This trade comes back tot he post on 6-30-2010; a bet that Hong Kong sees some stock market volatility and some losses of the recent highs. The gold story I posted today had the opposite sentiment. It was bullish (ish)... Did I just say ish - ish?... Hmm... Not enough coffee?....

This is trade analysis, not a recommendation.

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Ebix (EBIX) - Elevated Vol Trade and Scalping Earnings

EBIX is trading $24.20, up 0.8% with IV30™ up 1.3%. The LIVEVOL™ Pro Summary is below.

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

Custom Scan Details
Stock Price >= 5
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 <=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 EBIX Charts Tab is included (click to enlarge). 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 IV30™ is ~57 vs HV20™ of 41. Also, the long term trend of realized vol, HV180™, is just 42, so vol is elevated. You can actually find a bunch of stocks with short term implied that's elevated relative to short term realized as the market has been in a steady upswing and we're going into Oct, which can be "jittery" to say the least. I like EBIX in particular because the long term HV (HV180™) is also quite low.

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

We can see that the Oct 24 straddle is priced at about 55 vol or a $2.20 sale. The Nov 24 straddle is at 56 vol (or $4.10 to purchase) but earnings are probably in the Nov options cycle. This is interesting as earnings are a volatility event and present a nice little cover to a possible sale.

Possible Trades to Analyze
1) The riskiest trade would be a naked straddle sale in Oct @ $2.20. In this new found world of takeovers, I think a touch more prudence may be appropriate.

2) With the above in mind, selling the Oct straddle at $2.20 and buying 2 Oct 27 calls for $0.50 total, or a $1.70 net credit, may be a bit safer. Note this still has naked downside risk.

3) Noting that earnings are in the Nov cycle, another trade seems reasonable. A sale of the Oct 24 straddle and a purchase of the Nov 24 straddle yields a $1.90 debit. Last earnings cycle the IV30™ reached as high as 64.69, so a 56 vol purchase in Nov might actually be a winner using the Oct straddle sale to fund the time decay. The hope here would be that EBIX sticks close to $24 on Oct expo, then the Nov 24 straddle (long) should be worth well over the $1.90 debit. A sale of that straddle right before earnings on elevated vol is one approach to exiting the strategy. Keep in mind, this trade loses to a takeover unlike #2, as it's long vega through the calendar spread. Unlike #1 though, it has a capped max loss of $1.90.

This is trade analysis, not a recommendation.

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Kinross Gold (KGC) - Bearish on Gold Might Point to Bullish on Market

KGC closed at $19.00 up 1.6% yesterday. The LIVEVOL™ Pro Summary is below.

An interesting trade build up in a gold stock... First, let's quickly look at the GLD three month stock chart (click to enlarge).

Basically straight up.

KGC traded over 37,700 options yesterday on total daily average option volume of just 12,480. The largest trade was 10,400 Nov 17/20 risk reversals, bought puts/sold calls (I think). 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 mostly opening (compare OI to trade size), the puts are ambiguous. Looking at the new OI pre-open, I see the put OI has jumped to nearly 20,000, so the puts were opening as well.

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

We can see the front three months do have a turn up to the upside, though for a commodity this is actually normal.

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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

What's noticeable is that the stock (gold) is ripping. All-time highs are occurring in the commodity almost daily at this point. I find the order flow to be interesting in that it's bearish, long a touch of vol (21 vol purchase in the puts to 17 vol sale in the calls) and a double down. In general the market sentiment feels more bullish and bets on gold no longer being the best investment echo that.

This is trade analysis, not a recommendation.

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Foster Wheeler (FWLT) - Oct Call Buyers on Promising News; Buyout Rumors Surface

FWLT is trading $24.67, up 3.8%. The LIVEVOL™ Pro Summary is below.

The news from Yahoo! Finance:
8:15AM Foster Wheeler obtains encouraging results from initial PetroAlgae biomass testing (FWLT) 23.76 : Co announced that its Global Engineering and Construction Group, working with PetroAlgae (PALG.OB) has completed its initial testing of PetroAlgae's biomass, with encouraging results. The biomass, produced at PetroAlgae's micro-crop farm in the U.S., is being tested as a delayed coker feedstock supplement to provide renewable biofuels to the market.

Buyout rumors are surfacing... Here's a quick look at the Tick Chart today (click to enlarge).

The company has traded over 15,000 options on total daily average option volume of just 2,987. All but 915 contracts have been calls yielding a 15:1 call:put ratio. The action is in the Oct 25 and 26 calls where over 10,500 have traded. I believe the interest to be substantially buyer initiated. 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 in both lines are mostly opening (trade volume >> OI).

We can also see that Oct vol is up while all other months are down. This leads me to believe there is substantial buying interest.

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

I've highlighted the calls in play. Interesting to note that the skew hasn't budged - flat and consistent throughout.

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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see that the IV30™ is caught in between the short term historical (HV20™) and long term historical (HV180™). We can also see the FWLT has been much higher, up to over $32 in late April. The 52 wk. range is [$23.33, $35.01].

This is trade analysis, not a recommendation.

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Zimmer (ZMH) - Curious Large OTM Call Buyers in March

ZMH is trading $50.45, up 0.7% with IV30™ down 1.0%. The LIVEVOL™ Pro Summary is below.

The company has traded over 45,000 options in the first two hours on total daily average option volume of just 875. All but 646 contracts have been calls yielding a 69:1 call:put ratio. The largest trade was a purchase of Mar'11 65 calls 24,000x for $0.40. 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 in March are opening (compare OI to trade size). The calls in Jan'11 (55 strike) are sales on long OI - they are closing that line.

We can see the largest OI in March'11 is 607, so the 35,000 65 calls are huge for this name. Those calls alone make up three months worth of call trading on average.

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

I've highlighted the Mar'11 65 calls. Really not a lot going on in terms of skew shifts, which I do find odd.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV180™ - orange vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the implied is elevated substantially to the historical (~30 to ~24). The Mar'11 65 calls traded on 28 vol. The 52 wk. range for ZMH is [$46.27, $64.77], so these bets are on a move well past the annual high.

This is trade analysis, not a recommendation.

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Network Appliance (NTAP) - Elevated Vol with a Twist in Takeover Name

NTAP is trading $50.72, up 2.7% with IV30™ up 4.7%. The LIVEVOL™ Pro Summary is below.

I found NTAP on the elevated vol custom scan.

Custom Scan Details
Stock Price >=5
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >= 10 <= 60

Let's first look to the Charts Tab (6 months). The top portion 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 (click to enlarge).

We can see short term implied is ~52 while short term realized is 34 ad long term (trend) realized is 40. With earnings outside of the Oct cycle, this vol feels elevated, but with a twist discussed below. The IV30™ 52 wk. range for NTAP is [26.78,54.75], so we're at elevated levels.

Let's look to the Skew Tab, where we can see vol by strike by month (click to enlarge).

Note that Oct (red) is substantially bid to the upside. In English, there is higher risk of a large upward move than downward as reflected by the options market. Why?... Because of takeover fever. NTAP is in the same space as PAR, NZ and other takeovers.

Let's look to the Options Tab, and figure out some potential trades to analyze (click to enlarge).

Possible Trades to Analyze
1. Selling the ATM straddle @ $4.50 feels juicy, but super risky due to takeover risk.

2. Selling puts sells vol but is a naked delta bet as well.

3. Selling the Oct 50 straddle @ $4.50 and buying 1 Oct 55 call with 1 Oct 60 call yields a $3.20 credit and probably still wins to a takeover as long as the price is over $61.80. There is a dead zone between $53.20 and $61.80. The real risk is the naked downside. Assuming no takeover, this strategy wins if NTAP is in ($46.80, $53.20) at Oct expo. If a sort of "floor" forms in the takeover names, this strategy could work. The PnL chart for this strategy is included (click to enlarge).

This is trade analysis, not a recommendation.

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AirTran (AAI) - Lucky Bet or Cheater in Takeover?

AAI is trading $7.35, up 61.5% with IV30™ down 55.4% on takeover news. The LIVEVOL™ Pro Summary is below.

The news from United Press International:
"U.S. discount carrier Southwest Airlines said Monday it had agreed to purchase AirTran Airways for $1.4 billion in cash and common stock. The deal values AirTran at $7.69 per share, a premium of 69 percent over the airline's closing share price on Friday, Southwest said in a statement."

Unfortunately, I think there may be some foul play here pre-takeover announcement. Jeff Kearns from Bloomberg alerted me to this and has already posted an article.

First, we can look to the OI chart for the Nov 5 calls (click to enlarge).

That pop came on 9-23-2010 (so the trades were 9-22-2010), 750+ of them. The company averages ~270 calls in total, so 750+ on one line in Nov where the total OI on all strikes was just 5 (five) is "unusual." I've included the Options Tab and below that the Time & Sales tab for 9-22-2010 in the Nov 5 calls (click to enlarge).

That doesn't look like an accident, just sayin'. An ~$11,000 purchase turns into ~$175,000 in 5 days on several times daily average volume... Boo...

This is trade analysis, not a recommendation.

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