The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. It also came up on the one day vol gain custom scan making it pretty interesting.
Custom Scan Details (calendar spread)
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1
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 back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.
Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).
We can see how the front month is elevated to the back (red line is above the yellow line). I have highlighted the 75/85 strangle vol diff.
Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
What I'm interested in here is the vol portion. The Dec vol is in the 47 range. That vol level is actually off the chart (literally). There is some juice in the front month for sure.
IV30™ (and Jan IV): 29.47
HV20™: 24.98
HV180™: 33.09
Dec IV: 47.05
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
1. Sell the Dec 75/85 strangle @ 0.58 (~51 vol)
Buy the Jan 75/85 strangle for $2.40 (~ 22 vol)
Net debit is $1.82.
2. Do #1, but also sell the Jan 70 puts @ $0.50. This reduces the net debit to $1.32 and is naked the downside below $70 for this week (until Dec. expo.).
3. Pay it totally backwards:
Buy the Dec 80 straddle for $3.13. Maybe there's something to this elevated vol and V is gonna move in the next week.
4. As usual, the final trade is for you risk lovers:
Do #2, but sell two of the Dec 75 puts @ $0.22. This reduces the net debit to $1.10. The downside risk goes away after Friday. If V is inside the short straddle strikes, this trade might close for win on expo (i.e. a sale of the Jan 75/85 strangle out on the next Monday could be a winner even if the stock doesn't move).
This is trade analysis, not a recommendation.
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Good stuff Ophir
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