I found this stock using a real-time custom scan. This one hunts for high vols.
Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=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 IDCC 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).
We can see:
IV30™: 50.11
HV20™: 38.29
HV180™: 29.84
So, IV30™ is elevated relative to the short term and long term realized movement of the stock. It looks a vol sale over 43 would be reasonable, a purchase under 24 would also be reasonable.
Let's look to the Options Tab (below).
Note how high the Jan vol is. This is a great way to see how the IV30™ is a blended average of two months. Selling 43 (ish) vol would be reasonable, which is actually above the Dec 34 straddle. The Jan 34 straddle is priced at ~53 vol, but carries more risk. The second month is priced at around 53 vol, or 9 points higher than Dec.
Possible Trades to Analyze
1. Sell the Dec 34 straddle @ $2.25 or 41 vol.
2. Sell the Dec 33/35 strangle @ $1.40 or 42 vol.
3. Sell the Dec 32/37 strangle @ $0.70. Note that the Dec 37 calls are 48 vol. Whoa... Takeover rumor?
4. #3, but cover the upside with a 38 call purchase for 0.25. That's a $0.45 credit, max upside loss is $0.55, naked downside.
Note for trades 1-3, those are naked short. I thin covering the upside in a takeover happy world is a good idea. Another approach is to sell meat (ATM) and buy OTM on a ratio, like 3:1. This should yield a premium if the stock sits and a nice win if the stock is taken over.
This is trade analysis, not a recommendation.
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what about buy Dec 36 and sell Jan 37 10 to 12 point vol sell
ReplyDeleteSure, any kind of vol scalps are good to me.
ReplyDelete