First Solar (FSLR) - Elevated Vol, Calendar Spread, Downside Risk Heightened

FSLR is trading $47.26, up 7.9% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.



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First Solar, Inc. (First Solar) manufactures and sells solar modules with an advanced thin-film semiconductor technology.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. There's also some spooky downside vol that we can look at. Let's start with the calendar spread:

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.

Let's start with the Skew Tab.



We can see the front is elevated to the back across all strikes. We can also see a cool parabolic skew for both months, reflecting substantial downside risk and upside risk (i.e. potential).

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).



The stock chart is scary bad. In fact, the 52 wk high is $175.42, while the 52 wk low is $40.05. The last earnings release saw the stock dip ~$14 from $57.95 to 43.97 or 24%. Right now the implied is elevated to the two historical measures. Specifically:

IV30™: 74.75
HV20: 62.78
HV180: 65.88

The 52 wk range in IV30™ is [32.29, 128.38], so 75 ain't exactly crazy high. In fact, the current level puts it in the 44th percentile.

Finally, let's look to the Options Tab (below).



Potential Trades to Analyze
The thing that I noticed the most, even beyond the vol diff from month-to-month, is the downside puts. The stock low is $40, but the Jan 21 puts are $0.12 bid, priced to 111 vol. Yikes.

For those willing to take on some downside risk, a calendar spread additionally funded with some far OTM puts in Dec or Jan could be an interesting play. Going diagonal allows for a delta bet and protecting some of that downside. The same can be said for the upside as the skew is parabolic.

This is trade analysis, not a recommendation.

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Lorillard (LO) - Elevated Vol Trend, Time Spread Opens to Puts

LO is trading $110.67, up 2.0% with IV30™ down 2.1% as of ~10:30am EST. The LIVEVOL® Pro Summary is below.



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Lorillard, Inc. (Lorillard) is the manufacturer of cigarettes in the United States.

I noticed LO for a couple of reasons – both vol related. The first is the tendency for the implied to trade above both the short- and long-term historical realized vols. It’s sort of a front spreaders dream. Let’s start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™- red vs HV20 - blue vs HV180 - pink).



On the stock side we can see that several months ago the stock did move with a lot of volatility. From 5-31-2011 to 6-7-2011 the stock went from $115.28 down to $97.20. Then on 6-14-2011, the stock popped ~$13 back up to $113.59. But, it’s the last two months that have begun (and maintained) the elevated trend. Since 9-22-2011, the IV30™ has traded above the historical vols (HV20 and HV180) and that vol diff is now at its peak (relative to HV20). Specifically:

IV30™: 45.25
HV20: 17.27
HV180: 31.37

The second vol related phenomenon I noticed in LO relates to the skew and vol term structure. Let’s look to the Skew Tab, below.



We can see that the front three months have monotonic increases in vol from the back to the front expirations, while the skew shapes are the same (and “normal”). The next earnings release for LO should be in the first or second week of Feb, so the Mar options have that vol event embedded in them. Oddly, the Mar options show the lowest vol of the three front expirations (though it is elevated to Jun).

The vol opens up the furthest in the downside puts, as Dec downside is pretty bid.

Let’s turn to the Options for completeness.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. I will note that the 52 wk range for LO stock price is [$68.76, $118.57], so it’s much closer to an annual high than an annual low. The 52 wk range in IV30™ is [20.30%, 68.43%], so it’s sorta middle(ish) sitting in the 53rd percentile. Not to overwhelm with numbers, but the HV20 percentile is just 28%, or in English, the stock's recent "low realized vol" is a bit on the low side relative to its past -- so it might start moving some more soon. The option market certainly reflects elevated risk.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 11-30-2011

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Central European Distribution (CEDC) - Stock Pops on Equity Stake... Why Does Vol Drop?

CEDC is trading $4.27, up 25.5% small with IV30™ down 6.9%. The LIVEVOL® Pro Summary is below.



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Central European Distribution Corporation (CEDC) operates primarily in the alcohol beverage industry. CEDC is a producer of vodka and is Central and Eastern Europe’s integrated spirit beverages business.

This stock caught my attention for several reasons, perhaps the most apparent being the stock pop, up more than 25%. Let's start with the news:

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Russian Standard Corp discloses 9.9% stake in 13D filing [...]
"The Reporting Persons acquired the securities as a strategic investment because the Issuer operates in segments complementary to the Reporting Person's premium spirits business -- wine and low and mid-priced vodka, and has strong positions in the Eastern European spirits market."
Provided by Briefing.com (www.briefing.com).
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So, in English, a meaningful company has taken a stake in CEDC. Before we look at the option and vol stuff, let's peek at an interesting article from The Motley Fool:

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What's going on with the inventory at Central European Distribution? I chart the details below for both quarterly and 12-month periods.


Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.


Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, finished goods inventory was the fastest-growing segment, up 35.1%. That can be a warning sign, so investors should check in with Central European Distribution's filings to make sure there's a good reason for packing the storeroom for this period. On a sequential-quarter basis, each segment of inventory decreased. With inventory segments moving opposite directions for the periods we're considering, this one is a toss-up.

Source:Here's Why Central European Distribution's Latest Report Might Worry You, written by Seth Jayson.
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Pretty cool analysis regarding inventory, or more specifically, breaking an aggregated inventory number into meaningful subsets.

Let's look to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



We can see the implied has been rising with the realized movement of the stock. IV30™ had risen from ~84 to ~190 while HV20 went from ~88 to ~209 from 10-24-2011 to 11-25-2011. With today's move in vol, a rather large gap has opened between the short-term realized historical vol and the IV30™.  Apparently the elevated implied was reflecting some sort of risk that has been somewhat ameliorated with the 9.9% stake...?...

Let's turn to the Skew Tab.



The skew holds a "normal" shape over both of the front two expirations, with the front elevated to the back across all strikes. The 4 strike puts show a ~24 vol diff from front to back. Hmmm...

Finally, let's look at the Options Tab.



Possible Trades to Analyze
What I didn't show in the 6 month chart was the catastrophe that has been this stock's performance over the last 12 months. The 52 wk range is [$2.75, $28.08]. Yeah... $28... Ouch...

Earnings reports have tended to lead to large falls, including 40% (ish) drops on 3-1-2011 and 8-4-2011 (both off of earnings).

This pop seems a bit extreme given the news, but then again, WTH do I know?  Is there less risk in the stock now?  Was the risk that was reflected one that involved an equity stake or solvency?  The Dec/Jan 4 put spread cost ~$0.40 and sells ~20 points higher vol than it purchases... But, this was a $3.40 stock yesterday, so,ya know...

Another interesting position to examine could be the Dec/Jan 4/3 put spread -- paying even to own Jan vs Dec and owning that vega in Jan should the stock crack back down below $4. Of course that short gamma will sting a bit should the stock dip below the short strike.

This is trade analysis, not a recommendation.

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Ivanhoe (IVN) - Elevated-Elevated Vol

IVN is trading $19.76, up 2.2% with IV30™ down 0.7% as of ~11:20am EST. The LIVEVOL® Pro Summary is included below.



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Ivanhoe Mines Ltd. (IVN) is an international mineral exploration and development company. The Company’s principal mineral resource property is the Oyu Tolgoi Project, located in Mongolia.

IVN showed up on two custom scans – high vol and calendar spread (months one to two). Tricky…

Let’s start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



Check out the vol trend over the last six months. IV30™ was ~39 six months ago – it climbed all the way to 116.82 on 11-23-2011, and is now sitting at 106.70. In English, the option market now reflects 273% of the risk that it did half a year ago. The stock price is ~$6 lower than it was six months ago (or 24% lower).

More specific to the vol comps right now, the historical realized vols (both long-term and short-term) are significantly depressed to the 30-day implied.

IV30™: 106.70
HV20: 66.43
HV180: 70.51

As the implied has been rising, the short-term historical realized has been dipping rather significantly, dropping from 126 on 10-18-2011 to now 66.43. Again, in English, the stock has moved with less volatility over the last 6 weeks as the implied has been rising.

Let’s turn to the Skew Tab to examine month-to-month and strike-to-strike vols.



We can see that the front month is elevated to the back for all strikes while the shape of the skew is similar across both expos. While the IV30™ is elevated at 106.70, the ATM vol in Dec is ~111.

Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. I will say that we've got an interesting vol phenomenon here. Elevated vol using the hypothetical 30-day option along with elevated front month to back month vol. That makes the front month elevated-elevated vol.

The elevated vol reflects elevated risk. With IV30™ so clearly elevated to a dipping realized vol, this feels... weird... As a simple example, the Jan 11/29 strangle is valued at $0.85. Whoa... The 52 wk range in IVN is [$12.11, $30.03]. The fact that the 11/29 strangle is bid on both sides and worth nearly $1 reflects the possibility that the stock makes a new annual low (or high) within the next month and a half. That means a lot of risk to short gamma (and long vega if it’s one-sided).

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 11-29-2011

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InterDigital (IDCC) - Elevated Vol... Again... Again...

IDCC is trading $42.50, up 4.4% with IV30™ down 4.0%. The LIVEVOL® Pro Summary is included below.



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InterDigital, Inc. (InterDigital) is a holding company, and its various subsidiaries engage in technology research and development activities or in the prosecution, maintenance, enforcement, and licensing of patents.

I wrote about IDCC on an elevated vol note on 11-7-2011. You can read that post here:
InterDigital (IDCC) - Elevated Risk, Calendar Vol Diff; Risk Building Again

The IV30™ three weeks ago was 91.76 and was elevated, now it's nearly 97...

The IDCC Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



I circled the vol level of the last post as a reference, and the current level as well.  The stock has been all over the place with an epic spike on some patent valuation news in Jul. Of late the stock has moved at a relatively muted realized vol to the implied. Specifically:

IV30™: 96.92
HV20: 49.25
HV180: 75.84

Let's turn to the Skew Tab, below.



It's interesting that even though the vol is elevated (and has remained so), the vol is not necessarily elevated in the front. In fact, the weekly options are depressed to the monthlies and the ATM vol in Jan'12 is elevated to Dec. This is not an earnings phenomenon as the next release should be at the end of Feb if history holds.

Let's look to the Options Tab (below) for completeness.



Possible Trades to Analyze
I always ask the same question with this stock -- is it the downside or the upside that is the riskiest? The skew is parabolic, reflecting essentially two-sided risk. Hard to sell gamma here and hard to own vega as well. This is a tricky one where elevated vol may actually be a reflection that owning it is better than selling it.(?)  Then again, owning 96 vol given how the stock has moved (or not moved) is tough as well.

This is trade analysis, not a recommendation.

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Sina Corp (SINA) - Elevated Vol, Elevated Downside Skew, Dropping Stock and Rumors

SINA is trading $59.16, down 6.3% with IV30™ up 15.6%. The LIVEVOL® Pro Summary is below.



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SINA Corporation (SINA) is an online media company and MVAS provider in the People’s Republic of China (PRC) and the global Chinese communities.

This is a vol note on a stock down substantially (to a new annual low) with popping vol, while the market rallies hard and VIX is down over 6%. There was some news that a newsletter would come out with some negative "stuff" on SINA. The stock has come off of its lows when a report that JPM would defend the stock if a letter came out was published. Shortly thereafter, another rumor came out that there was no such newsletter article in the makings. K?...

Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



SINA stock was higher than $120 just a few months ago and hit as low as $56.05, today. The 52 wk low was $61.20. On the vol side we can see the IV30™ is spiking right now.  On 11-16-2011 the IV30™ closed at 69.31. As of this writing the vol has risen to 95.49 or up 37% in twelve calendar days.

Along with the vol spike, a calendar diff has opened up between the front three expirations (including the weeklies). Let's turn to the Skew Tab, below.



We can see a substantial vol diff has opened between the downsides for each of the three expos. The next earnings cycle is likely due out in Mar -- so this is not earnings related.

Finally, let's turn to the Options Tab for completeness.



Possible Trades to Analyze
The Dec 40 put action today looks like sales on small existing OI. A 3,881 lot went up on PHLX @ $0.50 with a $0.50 x $0.80 market. Those puts are now $0.70 bid... ouch... but maybe temporarily...

Chinese stocks in general have a tendency (or a possibility) to gap (down usually) and to spike in vol. They can also halt for several months leaving stock and options holders... ummm... in a not good place?...

With the violent move down in price and rise in vol off of a rumor of an article that never happened -- what would happen if it did happen?... A bet against "it happening" in the next five trading days looks to the weekly options which are pretty juicy. The Dec 45 puts are priced @ 160 vol... whoa... The ATM straddle is priced @ 110 vol -- also a whoa... The 52 wk high in IV30™ is 119.56. Having said that, the stock moved down $7.10 at its low today so a $6.30 five day straddle isn't necessarily "high vol."

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 11-28-2011

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Pre-Market/Post Market: 11-25-2011

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ENERGY XXI (EXXI) - Elevated Implied, Elevated Front to Back

EXXI is trading $27.75 down 5.5% with IV30™ up 9.2%. The LIVEVOL® Pro Summary is below.



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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

This is a vol note -- both elevated overall implied and a month-to-month vol diff. Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



On the stock side, check out that cataclysmic drop in early Aug -- icky... The stock fell from $32.66 on 8-1-2011 all the way down to as low as $21.04 on 8-9-2011. That's $11.62 or a 35.6% drop in eight calendar days.

On the vol side, we can see the implied is trading substantially above the two historical realized measures. Specifically:

IV30™: 70.28
HV20: 58.41
HV180: 58.58

It's worth noting that after the abrupt stock drop, EXXI IV30™ hit as high as 98.58. Let's turn to the Skew Tab (below).



We can see in this image that the Dec monthly vol lies above the Jan -- and the vol diff is more pronounced to the downside puts.

Finally, let's turn to the Options Tab for completeness.



Possible Trades to Analyze
There are calendar spreads, put spreads, call spreads, ratio spreads and calendar ratios on the board. Noting that the 52 wk range in EXXI is [$18.79, $37.20], one can examine the downside. A Dec 22/21 1x2 put spread receives a credit and doesn't start to lose money until EXXI cracks below $20 (on expo).

Alternatively, a Dec/Jan 22/22.5 put spread selling the front twice keeps some deltas in the diagonal and pays a small premium. This one gets long the vega in the back which is depressed to the front.

One-to-one calendars and plain vanilla c/s and p/s seem reasonable on certain strikes as well.

Another note, last time I wrote about EXXI was 6-20-2011, noting elevated vol. Well... By 8-9-2011, that ~52 vol didn't look expensive. You can read that June post here:
Energy XXI (EXXI) - Elevated Vol... Again...

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