Friday, March 22, 2013

Eldorado Gold (EGO) - Massive Call Buying in July Changes Skew; Pushes Back Month Vol as Stock Nears Multi-year Lows


EGO is trading $9.80, up 1.5% with IV30™ down 6.4%. The LIVEVOL® Pro Summary is below.



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Eldorado Gold Corporation (Eldorado) is a gold exploration, development, mining and production company. The Company owns and operates mines worldwide.

This is an order flow and skew note -- with action in the July calls. The company has traded 51,851 contracts on total daily average option volume of just 2,405. Calls have traded on a 16.6:1 ratio to puts with the action in the July 10 calls. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the July 10 calls have traded more than 44,000 times on existing OI of just 2,779. When looking down the entire option chain for EGO, I don't see any OI even close to five-figures, so the volume in July calls is enormous for this name. Further I note that while Apr vol is down, July vol is up quite substantially pointing to circumstantial evidence that this is call buying. While the stock volume is higher than average, given that these are 50 delta options, the lion share of the calls are potentially going unhedged.



The Skew Tab snap (below) illustrates the vols by strike by month.



I have included just the July skew and I note simply that the skew flattens at the 9,10, 11 strikes then continues in a normal shape (decreasing vol to OTM calls). In English, the order flow does seem to have an effect on the skew shape.

Finally, the Charts Tab (two-years) is 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 price is near a multi-year low, so the call buying may be opportunistic. The 52 wk range in IV30™ is [32.20%, 59.72%], putting the current level in the 23rd percentile. Certainly July vol is higher than IV30™, but still, this looks like call buying in a depressed stock with depressed vol. At the very least, it looks like vega buying if not directional wrt delta. One to add to the watchlist I would say...

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