BMC Software (BMC) - Bullish Flow, Skew Kinks and a Calendar

BMC is trading $42.60, up 7.4% with IV30™ up 11.9%. The LIVEVOL™ Pro Summary is below.



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I wrote about BMC a couple times, noting the upside skew kinks, though at times the flow looked bearish as well. Today, I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price >= $7 <= $70
IV30™ - HV20™ >= 13
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings <=10 >=75

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

 

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.

BMC is up, I think the move is related to news of their acquisition of a software business (Neptuny), but not sure. The company has traded over 24,000 contracts in the first hour on a daily average of just 2,575 with a 3.5:1 call:put ratio. The Stats Tab is included (below).



The BMC Charts Tab is included (below). 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™: ~41.8
HV20™: 17.29
HV180™: 26

So, IV30™ is substantially elevated relative to the short term and long term realized movement of the stock. We can also see the gap up in stock price. Let's look to the Skew Tab (below).



There's a pretty clear upside skew in both Oct (red) and Nov (yellow). The largest difference is the 45 line, where the Oct calls are priced at ~48 vol, versus ~42 vol in the Nov options.

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



We can see that the Oct 43 straddle is priced at ~ $2.30 (43 vol) and the Nov 42.5 straddle is priced at ~ 4.80 (41 vol). Like a few of my recent posts, this is interesting as earnings are a volatility event in the Nov cycle and present a nice little cover to a possible sale.

Possible Trades to Analyze
1. Sell vol in Oct naked: Whether it be straddles or strangles, the vol is elevated. Covering the upside in this M&A happy environment could be wise with a vol sale.

2. Time spread the options, buy Nov and sell Oct, do it for a small vol credit and get the benefit of earnings in the Nov cycle (projected).

3. Trade the skew in Oct. A 43/45 call spread paying $0.50 or less actually pays lower vol than it sells in a call spread which is a nice trick.

4. Trade the skew and the calendar. An Oct/Nov 45 call spread (sell Oct/buy Nov) sells ~48 vol and purchases 42.5 vol with the benefit of earnings and theta working for the trade. A takeover turns this into an instant loser as long vega goes bye bye.

This is trade analysis, not a recommendation.

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