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Norfolk Southern Corporation (Norfolk Southern) is a Virginia based company that controls a railroad, Norfolk Southern Railway Company.
Since there are so many interesting calendar spread candidates available I decided to focus on one where the absolute level of implied and the long-term historical is relatively low. This makes the short gamma/long vega position a touch more palatable. NSC came up on the real-time front to second month calendar spread custom scan and has an HV180 (long-term realized vol) of 22.77. Nice, let's work with a 23 realized vol stock and a 38 implied.
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.
The vol diff for NSC is actually less than the 8 points in the scan, but the downside gets us the vol diff we need for an interesting analysis. Let's start with the Skew Tab (below).
We can see an annoyingly smooth skew which yields no specific strike spreads that jump out, but the downside vol diff inter-month does grow to double digits on the 62.5 and 60 strikes.
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).
So we see the basic stock drop and slight recovery -- i.e. like most all stocks traded in the US markets of late. The implied has popped but the realized short-term moves have essentially paced the implied. Nice and neat fair vol pricing (ish). As of right now the vols are:
IV30™: 38.15
HV20: 37.30
HV180: 22.77
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
1. Calendar Spreads
The downside calendars between the front two months offer some nice vol diffs. The Aug/Sep 62.5 put spread sells ~10 vol points higher than it purchases. The Aug/Sep put spread sells nearly 20 vol points higher than it purchases. The ATM yields ~7 vol points and the upside looks more like 5 vol points.
2. Intra-month Vol Sale
The ATM vol in Aug is priced at ~45. From above (Charts Tab) we can see that is quite elevated to the HV20. I do note that HV10 (the last 10 trading days) is 48.84, so all of a sudden being short that gamma isn't automatic. For you vega sellers (rather than vega buyers through the calendar spread), a vol sale ATM may be worth some analyses, but do note that vol levels (duh).
This is trade analysis, not a recommendation.
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