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Calpine Corporation (Calpine) is an independent wholesale power company in the United States. Calpine owns and operates primarily natural gas-fired and geothermal power plants in North America.
This is another one where the ripping vol (today) is bit of a mystery. The company came up on a couple custom scans, but let's focus on the calendar spread 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.
I usually start with the Skew Tab here, but the Charts may provide a better introduction to this one. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).
The stock closed at $16.88 on 7-28-2011, the day before an earnings announcement. Since then the stock has dropped to below $14.50, or ~14%. What's more notable may be the IV30™ move -- it went from 32.48 to now over 45, or a nearly 40% pop in just over a week and after an earnings release. The implied is now trading substantially above the historical measures. Specifically:
IV30™: 45.30
HV20: 32.68
HV180: 23.02
Let's now turn to the Skew Tab (below).
A great looking skew in that it's full of kinks. The vol diff to the 15 strike is the largest, then the downside vol dips in Aug but rises in Sep. The vol diff to the 14 strike is ~14 vol points as compared to the 15 strike, which is 25 vol points. Then to the upside the vol diff narrows to just 2 vol points. Pretty cool as we have a situation where vol in general is elevated to the historical, and the line-by-line vols have substantially varying diffs.
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
There's a lot to this one. A true analysis should begin with understanding why the vol is ripping, but, here are a couple of ideas that may spark some creativity.
1. Calendar Spreads (Aug/Sep)
a. The Aug/Sep 14 put spread sells ~14 vol points than it purchases and still leaves some downside room for the stock which has fallen considerably of late.
b. The Aug/Sep 15 straddle calendar (or one-sided) takes advantage of the largest vol diff, but does get sort the largest amount of gamma in the front.
This is trade analysis, not a recommendation.
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