The company has traded over 10,500 options in the first half of the day on total daily average option volume of just 8,163. Calls have traded on a 6:1 ratio to puts with the action in the front month 16, 17 and 18 calls. The Stats Tab and Day's biggest trades snapshots are included (below).
The Options Tab (below) illustrates that the calls are trading about the size of OI. The Dec 18 calls look like long OI so this is a double down in my opinion. The vol and skew is up, there are premium buyers out there.
The Skew Tab snap (below) illustrates the vols by strike by month.
The skew is big time parabolic ("big time parabolic?"). OTM calls are bid. I've noted a relatively large vol difference between the Jan 19 and Dec 19 calls (it's even wider in the 20 line).
Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
We can see the stock had climbed for a while, then gapped up on earnings and lately has actually dropped. IV30™ looks fair(ish) relative to HV180™ (i.e. the long-term trend of stock).
Possible Trades to Analyze
1. Month to Month Spreads:
Buy the Dec/Jan 19 call spread and pay $0.29. This purchases 55 vol and sells 61 vol.
Buy the Dec/Jan 20 call spread and pay $0.23. This purchases 56 vol and sells 64 vol.
2. Do a skew trade intra-month. Buy the Dec 16 calls for $0.94 and sell the Dec 19 calls @ $0.21. That's about an 8 vol point scalp for a call spread.
3. I like the spreads here if it's selling the elevated skew and not paying too much premium as this is name tends to bend up on rumors that don't materialize. And yes, I know I just analyzed call spreads... lol.
This is trade analysis, not a recommendation.
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I've noticed that you like to sometimes sell premium when the skew is this positive, is it because these takeover/merger rumors don't materialize that often?
ReplyDeleteHow do you weigh the risk/reward?
When I see a skew this positive, I tend to say "trust the market," and back off, or just do a backspread.
Just curious how you approach these skews . . .
I like to sell elevated vol and if necesary cover with lower vol. In these types of spreads a $0.25 "bet" feels reasonable given the vol the trade makes. Just to be clear though, this isn't advice. I'm just pointing stuff out. I think it's entirely reasonable to read this post and have the opinion that this is too risky or to actually buy the vol.
ReplyDelete