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This is one of a series on custom scans and identifying trading opportunities. You can read either of the other two here:
Time Spread Custom Scan
Elevated Vol Custom Scan
With the market going up and the VIX going down, I am starting to look for opportunities to buy options (gasp!). I created a third custom scan, this one looking for back spread (purchase) opportunities. A snapshot of the custom scan is included.
Custom Scan Details
Stock Price GTE $10
IV30™ GT 1
Industry isNot Bio-tech
Average Option Volume GTE 1000
IV30™ - HV20™ LTE -10 GTE -75
Days After Earnings GTE 29
So, non-bio tech stocks that are more than $10, with HV20™ at least 10 points higher than IV30™ which are not affected by earnings.
I found NETL. We will look at four charts to analyze the vol situation. First, let's look at the broader view. A one year vol chart of IV30™ (red), HV20™ (blue) and HV180™ (pink). Click the image to enlarge.
We can see that the red line is below both the blue line and the pink line. In English, the Oct options are trading lower than the stock has moved over the last 20 trading days and the longer measure of the last 180 trading days.
Specifics
IV30™: 37.98
HV20™: 48.17
HV180™: 50
Let's now look at each vol by itself. First, the HV180™ over the last year.
A very cool chart, we can see long term trends in HV180™ for NETL. It collapsed from Sep09 to Jan10 where it fell to 37, then went straight up to its current level of 50.
Next, we'll look at the one year chart of HV20™.
We can see a strong cyclical move in the short term realized vol around earnings. This might actually be a good stock to buy earnings vol in given that abrupt pattern. While it peaked from last earnings, it has fallen to a more steady state of 48.
Finally, the one year chart for the IV30™.
The IV30™ also has a cyclical pattern with earnings, which is to be expected - rise into earnings, collapse out of earnings. More interesting however is that the IV30™ today has dipped below it's longer term support. I have drawn in a yellow line to clearly illustrate this "breach."
In all, we see a low IV30™, falling below a support level today, with the short term and long term realized well above it. We note that HV180™ started dropping pretty significantly right around now, last year.
Finally, let's look to the Options Tab.
Possible Trades to Analyze
A purchase of the 25 straddle, 26 straddle or 25/26 strangle is all around 38 vol. Looking to the 26 straddle, a $2.25 purchase requires NETL to be outside of the range [$23.75, $28.25] by Oct expo. Alternatively, a vol increase before then also makes this trade a winner. The 52 wk range for NETL is [$18.43, $35.00].
This is trade analysis, not a recommendation.
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Interesting analysis Ophir !
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