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Visa Inc. (Visa) is a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and checks.
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 GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 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.
As I looked through the various expirations (V has weeklies), I actually found a slightly more interesting calendar spread to examine. Let's look to the Skew Tab (below).
The term structure is monotonically increasing to the closer expirations. Note that the yellow curve is the Jul 1st weekly and the green curve is the Jul monthly. The blue line is August. The interesting thing here is that of late, V has traded at much lower historical vol than it's implied. The Jul weeklies are trading at ~55.5 vol, Jul monthlies at ~41 vol and the Aug monthlies at ~34 vol. Note that Aug has the next earnings cycle (and thus a volatility event).
The short-term historical vols for V are included below:
HV10: 18.64
HV20: 25.62
HV30: 22.90
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). That yellow line is the vol of the Jul weeklies ( I added it).
What I'm interested in here is the vol portion. Check out how high IV30™ is relative to the short-term historical vol (HV20) and the long-term historical vol (HV180). Specifically:
IV30™: 38.19
HV20: 25.62
HV180: 27.27
These levels make it clearer how elevated the Jul weeklies are.
Finally, let's look to the Options Tab (below).
Here we can see the month by month sigmas at the top.
Potential Trades to Analyze
1. Calendar spread Jul Weekly to Aug
a. The Jul weekly / Aug ATM calendar spread sells ~52 vol and purchases ~34 vol while owning the Aug earnings cycle (that's a projection).
b. The Jul weekly / Aug OTM put spread sells more than 60 vol and purchases vol in the id 40's while owning the earnings vega.
Both of these trades sell near-term expiring options and therefore bring a large negative gamma risk.
2. Calendar spread Jul monthly to Aug
Similar to the first trades, but this time selling ~41 vol.
3. Calendar spread Jul Weekly to Jul Monthly
This trade still sells that elevated weekly vol but purchases the Jul Monthlies which carry a higher vol but a lower premium than the Aug Monthlies.
NB: All of these trades bet on V continuing with low realized vol in the short-term. For the opposite type of position, owning the front month vol would be the play. The idea here, the vol is elevated for a reason, and maybe it's too low.
This is trade analysis, not a recommendation.
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