Friday, November 30, 2012

Post Market Report: 11-30-12

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Pre-Market/Post Market: 11-30-12

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Thursday, November 29, 2012

Post Market Report: 11-29-12

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Nexen (NXY) - Huge Vol Diff Opens as Implied Rises 250% Since Deal Announcement

NXY is trading $23.33, down 2.3% with IV30™ up 19.9%. The LIVEVOL® Pro Summary is below.



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Nexen Inc. (Nexen) is an independent global energy company. The Company’s conventional oil and gas assets consist of large acreage positions in select basins, including the United Kingdom North Sea, deep-water Gulf of Mexico and offshore West Africa.

I found this stock using a real-time custom scan I built in Fidelity. This one hunts for calendar spreads between the front two monthly expiries.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

But the real news behind this company occurred on 7-23-2012, when a takeover bid was made and agreed upon. I wrote about that day b/c of some apparent insider trading. You can read that blog here:
Nexen (NXY) - Pre-Takeover Order Flow Looks Like Insider Information; How to Make $32 million (3,200%) in a Week


Today I note the rise in vol and even more interesting, the rather dramatic calendar spread that has opened up. Let's start with the six-month Charts Tab, 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 the abrupt gap up on the takeover news and then the quiet period following. I do note the recent stock movement which has moved from absolutely still waters to more bumpy.

On the vol side, the story begins to unfold. Check out the rise in the implied of late. At the time of the takeover announcement IV30™ dipped to 25.88%. Today we can see the implied has risen to nearly 90%. So, a huge increase in risk as reflected by the option market.

Let's turn to the Skew Tab and we'll see a very interesting term-structure shape.



Note that for all three front expiries the upside skew slopes down, or said differently, the downside risk rises rather abruptly from the upside risk. This happens in a takeover when the upside is capped (the takeover price) but the downside is left open (if the takeover doesn't go through). What's remarkable here is the rather massive vol diff between the front three months -- and in particular between month 1 and month 3. Something is coming up in Dec -- a finalization, a decision, a vote, a something...

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



Across the top we can see the monthly vols are priced to 93.87%, 72.88% and 52.56%, respectively for Dec, Jan and Mar. While Dec and Jan overall show a ~21 point vol diff, look at the Dec/Jan 20 put spread -- that shows a 27 vol point diff. Similarly, Dec to Mar shows a ~40 vol point diff, but the Dec/Mar 20 put spread shows ~50 vol point diff. Although the spreads look compelling, this could easily be one where owning the vega in Jan or Mar could be a huge loser with the options literally going to zero if the deal is finalized. Ya know... or not...

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Pre-Market/Post Market: 11-29-12

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Wednesday, November 28, 2012

Post Market Report: 11-28-12

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Tesla motors (TSLA) - Vol Reaches Multi-year Lows as Stock Pops

TSLA is trading $34.21, up 6.4% with IV30™ down 0.5%. The LIVEVOL® Pro Summary is below.



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Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components.

This is a vol note -- specifically a company hitting a multi-year low in the implied. I found TSLA using a real-time custom scan. This one hunts for depressed vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The 2-year TSLA 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).



On the stock side we can see that while there have been some ups and downs, the stock has been pretty steady. The 52 wk range is [$22.64, $39.95].

But, this is a vol story -- so let's turn to the two-year IV30™ chart, below.



We can see that awesome decline in the implied of late, pushing well into multi-year lows as the stock has risen from ~$27 to now just under $34. The 52 wk range in IV30™ is [38.27%, 90.05%], making the current level a new annual (and multi-year) low.

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



Across the top we can see the monthly vols are priced to 37.15%, 41.23% and 47.59% for Dec, Jan and Mar, respectively. I dunno, multi-year low in vols right now -- stock up 6% today alone... Hmm...

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Pre-Market/Post Market: 11-28-12

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Tuesday, November 27, 2012

Post Market Report: 11-27-12

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Celsion (CLSN) - Odds of bankruptcy, Success and Date for "Make or Break" Cancer Drug Trial Results


CLSN is trading $7.22, down 7.4% with IV30™ up 6.5%. The LIVEVOL® Pro Summary is below.



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Celsion Corporation is an oncology drug development company focused on the development of treatments for those suffering with difficult to treat forms of cancer. As of December 31, 2011, the Company's product ThermoDox is being evaluated in a Phase III clinical trial for primary liver cancer (the HEAT study), a Phase II clinical trial for colorectal liver metastasis (CRLM) and a Phase II clinical trial for recurrent chest wall breast cancer.

This is a bio-tech note -- one with huge vol and some fascinating spreads and option pricing which lead to back of the envelope probability pricing. Let's start with the Charts Tab (one year) 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 the massive run up of late pushing the stock above $7 as the implied rises. There is an interesting article on Seeking Alpha from which I have taken a little snippet:

---
We are getting awfully close to January 2013 top-line release of "the Phase III HEAT Study, a multinational, double-blind, placebo-controlled, pivotal study of ThermoDox in combination with radiofrequency ablation (RFA) for the treatment of hepatocellular carcinoma (HCC), also known as primary liver cancer" -- the following 5 reasons additional reasons to be bullish now assume positive top-line results and what it means for shareholders.

Of course, all of this completely depends and anticipates top line data early next year being positive or the CLSN stock price will take a dramatic hit. This is a binary speculative event that could make or break CLSN. Make no mistake about it -- failure on the Phase III trials would cause CLSN to take a hit. Despite this very real risk, there are many reasons to be bullish.

Source: Seeking Alpha via yahoo! Finance; 5 More Reasons To Be Bullish On Celsion Now, written by Alex Heisenberg.
---

Binary event is the key, with the second key being, we don't know exactly when in Jan we get the results. That means elevated vol (binary event) and a confused Skew from which we can draw our own probabilities in terms of best guess of release of data.

Let's turn to the Skew Tab, below.



We can see how elevated Jan and Feb are to Dec -- so the option market reflects a much greater likelihood that the event (binary news) comes out after Dec expiry. We can also see that Feb is elevated to Jan, so the option market reflects a greater likelihood that the news comes out after Jan expiry but inside Feb expiry.

Let's turn to the Options Tab and start putting some probabilities together -- both for date of news and probability of total collapse (bankruptcy).



Probability of Timing:
Jan vol is ~230%, and Feb vol is ~294%. A back of the envelope probability calculation would say the odds of the release of news in Jan are 230/(230 + 294) and, of course, the odds for Feb are 1 - P(Jan). So, in English, the option market reflects ~44% chance the news is out in Jan and 56% chance the news is out in Feb. Now, in all fairness, this has so many flaws in its logic I could write an entire blog on it -- but this is just quick math -- to get a feeling for the timing of this event.

Bottom line: The Skew tab clearly reflects that there is a greater likelihood that the event (binary news) occurs in Feb rather than Jan, but that there is some ambiguity.

We can also look to the Feb "disaster" puts ($1 strike). The mid-market value is ~$0.225. A sale at that price yields a max loss of $0.775. The max gain/max loss ratio gives us another back of the envelope result -- the odds are ~1/4 that the company goes bankrupt off of this news by Feb expiry. Again, there is an entire blog's worth of assumptions that are made here in using this methodology, but this is how we do it quickly on the floor.

Bottom line: There is a non-trivial chance that bad news means CLSN is no more.

Also interesting are some of the spreads on the board. I personally sold the Feb 2.5/2 put spread @ $.25. That makes a max loss / max gain of 1:1 (.25:.25). Back of the envelope, the price for that spread reflects a 50/50 chance that the company trades below $2. My trade (a sale of those odds) is a belief that the "real" odds are in fact lower (I sold a 50/50 chance). You can do this kind of analysis on literally hundreds of permutations.

For the very probability happy traders, you can do the same in a calendar spread and then make use both of the likelihood of news coming out in Jan expiry (or Feb) with strike prices and diagonals.

For what it's worth, the largest trade I see today is a purchase of the Feb 4.5/2 put spread for $1.55. That's obviously a bet to the downside.

The inarguable fact is that this news is huge for CLSN -- good or bad.  As always, I hope the company succeeds -- let's remember this isn't just a stock, it's a shot at curing cancer.

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Pre-Market/Post Market: 11-27-12

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Monday, November 26, 2012

Post Market Report: 11-26-12

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Manitowoc (MTW) - Depressed Vol Nears Annual Low; But Why Right Now?

MTW is trading $14.82, up 2.2% with IV30™ up 2.0%.The LIVEVOL® Pro Summary is below.



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The Manitowoc Company, Inc. (MTW) is a multi-industry, capital goods manufacturer. MTW operates in two markets: Cranes and Related Products (Crane) and Foodservice Equipment (Foodservice).

This is a quick vol note -- I'm trying to note some lesser known names where vol has collapsed of late in a world / market where vol probably won't be collapsing.... I found MTW using a real-time custom scan. This one hunts for depressed vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The MTW Charts Tab (one-year) is included (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 awesome rise in late Dec 2011 to mid-Feb of 2012, when the stock rose from a 52wk low of $8.30 to a 52 wk high of $16.97 in just a couple of months. What isn't pictured here is that the stock was ~$23 in May of 2011 and came all the way down to that $8.30 level before rebounding. So, in English, this stock can move by 50% / 100% increments in a matter of months.

I've included an IV30™ chart (one-year) below to better isolate the vol move.



We can see how elevated the implied was a year ago and how quickly it dropped while the stock was ripping up (essentially doubling in three months). We can also see the dramatic decline in the implied of late after earnings. The 52 wk range in IV30™ is [41.92%, 90.68%], putting the current level in the 1st percentile -- i.e. right above the annual low.

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



Across the top we can see the monthly vols are priced to 42.08%, 45.79% and 51.49%, respectively for Dec, Jan and Mar. The vol in general just feels low right now -- not only b/c of the obvious annual comp, but b/c of how the stock tends to move and b/c of the fiscal cliff and b/c of Europe and b/c.... know what I mean?... No?....

This is trade analysis, not a recommendation.

Pre-Market/Post Market: 11-26-12

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Friday, November 23, 2012

Post Market Report: 11-23-12

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Pre-Market/Post Market: 11-23-12

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