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The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.
Custom Scan Details
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.
Let's look to the Skew Tab (below).
We can see how the front month is elevated to the back (which is normal this close to expo). We can also see how the third month (which has an earnings cycle) is right around the second month level.
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).
A few things here:
1. The stock can gap - check out that move down on 10-20-2011 on a Q3 earnings forecast. It also moved pretty big on the Aug 2010 cycle.
2. I'm also interested in the vol portion. Check out the level of IV30™ relative to the short-term historical vol (HV20™) and the long-term historical vol (HV180™). Specifically:
IV30™: 42.64
HV20™: 24.87
HV180™: 38.74
So, independent of a calendar vol spread, it looks like maybe a 20 vol purchase would be very nice and a 47 (ish) vol sale starts to look enticing.
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
1. Calendar Spread Months 1 and 2.
Sell the Jan 45 straddle @ $1.80 (~50 vol).
Buy the Feb 45 straddle for $4.60 (~44 vol).
2. 1. Calendar Spread Months 2 and 3.
Sell the Jan 45 straddle @ $1.80 (~50 vol).
Buy the Mar 45 straddle for $6.20 (~44 vol).
This is more expensive (obviously), but it owns an earnings cycle. An extension to this trade is to sell the Feb straddle after Jan expo.
This is trade analysis, not a recommendation.
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