Event Date/Time: Wednesday, March 12 @ 5:00 PM PST

Sign up here to receive a link to the GoTo Meeting at the time of the event:
http://www.lockeinyoursuccess.com/trading-triangle-webinar/

Trading Triangle Program - designed to bring experienced options traders to the point where they can trade at a professional level and transition to a full time trader.

You want to trade for a reason, what is it?

Importance of taking your goals and psychology into consideration when choosing a trading style or system.

How trading systems, psychology and business systems fit together to create a successful trader.

Knowing “how to trade” vs “trading a system”

Dangers of finding the perfect system.

The challenges traders face of starting an options trading business.

Things you need to consider before quitting your day job.

If time……..

M3, Bearish Butterfly and ROCK Trading systems; what they are and how they fit together to bring you to the level of trading the M21 program.

Find out more about John Locke on his website at:
https://www.lockeinyoursuccess.com/

If you didn't read my last post on selling far OTM options and theta decay, check it out here:
http://livevol.blogspot.com/2014/02/so-youre-premium-seller-huh-just-love.html

Today, I'm going to expand on this concept and add to it providing additional evidence to support the idea that you are much better selling far OTM options at 60 DTE or more than you are at closer to 30 DTE.

Here is a graph depicting the theta decay curve for ATM SPX options with theoretical option prices starting at 98 DTE. As you can see based on this graph, the largest amount of decay happens right around 30 DTE and if you are selling ATM options you are certainly served best selling around 30-35 DTE. Notice the 50% drop in value over the 28 day span from 35 DTE to 7 DTE. Obviously, this is assuming all other factors are constant.

One other thing to notice on this graph is how flat the curve is from 30DTE out to 60 DTE and beyond. Yuck! That's not where you want to be when selling ATM options. You are not getting enough theta decay for your risk. That's a poor trade.

Here is a graph depicting the theta decay curve for OTM 10 delta SPX options with theoretical option prices starting at 98 DTE. Notice how much steeper the curve is for both calls and puts from 98 DTE to around 35 DTE. At 35 DTE the curve really flattens out confirming the basis of my last post, which is YOU ARE NOT DOING YOURSELF ANY FAVORS BY SELLING FAR OTM OPTIONS AT 30 DTE. 

Now, based on this graph you might be saying to yourself, "I should go out and sell some far OTM puts at 98 DTE and take them off around 67 DTE. Yup, that's what I'll do. The data confirms this. I'm sooooo smart!!! Now, should I get a red or black Ferrari when I make my first million?"

Brilliant!!

Not so fast. In options trading - as in life - everything is a trade off and there are NO free lunches. In theory that might sound like a GREAT strategy but come back to reality David because we left the dentist and you need to understand how things work in the real world.

Why isn't it such a good idea to sell premium at 90-98 DTE???

There are few reasons I will argue against selling premium this far out in the future:

1. Vega risk
2. Volume / open interest
3. Inaccurate options model

Vega risk

The further out in time you go, the more vega risk you will have when selling premium. Given this, if you sell some relatively elevated volatility then you can make a lot of money in a very short time if the volatility comes out. However, sell mid-low volatility and you could get hammered in the short term due to your high vega risk. This could cause you to get "stuck" in the position for a very long time waiting and waiting for theta decay that just never seems to actually occur. 

Either way, vega risk should be a concern if selling premium, but it gets amplified the further out in time you go and for me - the vega risk at 98 DTE is just too high compared to 60-70 DTE. 

Volume / Open Interest

Now, this isn't an absolute truth across the board all the time, but generally speaking the farther out in time you go and the farther away from the money you go, the less volume and open interest you will find. That means entry into the trade could be difficult and you might not get a good fill. Worse than getting a poor fill would be getting taken to the cleaners on your exit. 

Let me paint a quick picture for you: You logon and check you LVX account and notice some far OTM spreads you sold have really decayed due to price movement and volatility coming in and your up a cool 5%. 

Nice! Time to cash out, collect the profits, and feel better about myself while I tell myself how smart I am. Should I plan my retirement yet? Ah, let me first put in this order right quick. You put in your order at the mid-price and wait. 

... And wait. 

Okay, I'll cave in a nickel you tell yourself. No big deal! Still a nice profit. You resubmit your order. 

... And wait. 

You cave a dime this time and crickets. NOOOOOOOOOO!!!!! 

Nothing will make you curse out a market maker faster than not getting executed near mid on a profitable trade. There aren't many disappointments in the world worse than thinking you are up and ready to close a trade for your profit target only to get taken to cleaners on execution and either have to close for far less than your profit target or stay in the trade which increases your chances of giving back your gains or even catching a loss. 

This is why liquidity is so important and volume and open interest can sometimes make or break a trade. 

Inaccurate Options Model

In my experience and from speaking with other trades you have to know when you should trust the options model and when you should not. For example, when looking at far OTM protective puts or "units" on the options model the difference between theory and real life becomes very apparent with a flash crash or black swan event. Your little protective put will gain far more in value than the model predicts. This is an instance when the model should not be trusted. The only problem is that the only way to know this is through experience and education. 

If that went right over your head, no worries... I'll explain: The model shows you that that your position should gain a certain amount of theta decay each day when selling at say 98 DTE yet the greeks don't seem to be behaving as the model predicts. You just aren't getting any decay and your actual position P/L remains stuck in the mud. 

What in the heck is going on here? It's an example of a time when the model might not be as accurate as you would like and this can happen with very far OTM options when they are very far out in time among other times that are outside the scope of this post. 

Okay, let's wrap it up. What timeframe is best to sell far OTM options? Based on this information the best traders I know sell far OTM premium around 60-70 DTE with a cutoff around 45 DTE. This provides the best balance of all factors including open interest/volume, vega vs. price risk, options modeling accuracy, and time spent in the trade. 

Feel free to post comments or question - I'd love to hear from you! 

The images (Theta decay graphs) used in this post were provided by Dave Robinson. Thanks Dave!! You can get in touch with Dave here:

Email: dtr.blogger@gmail.com

Dave also runs a great blog you should check out about building automated options trading systems, which you can find here: 

http://dtr-trading.blogspot.com

Retail trader turned pro, John Locke, will present his blueprint for success that can help you take your trading to the next level and make the jump from retail trader to full-time pro!!

http://www.meetup.com/San-Francisco-Options-Traders/events/169150062/

This Meetup will be held online over GoTo Meeting. Link will be provided prior to the event.

Trading Triangle Program - designed to bring experienced options traders to the point where they can trade at a professional level and transition to a full time trader.

You want to trade for a reason, what is it?

Importance of taking your goals and psychology into consideration when choosing a trading style or system.

How trading systems, psychology and business systems fit together to create a successful trader.

Knowing “how to trade” vs “trading a system”

Dangers of finding the perfect system.

The challenges traders face of starting an options trading business.

Things you need to consider before quitting your day job.

If time……..

M3, Bearish Butterfly and ROCK Trading systems; what they are and how they fit together to bring you to the level of trading the M21 program.

Find out more about John Locke on his website at:

https://www.lockeinyoursuccess.com/

So you're a premium seller, huh? 

Just love sellin' that juice. 

I'm guessing you've seen this graph before showing the exponential decay of an option's value at 30 days to expiration:

Let me take another guess: After viewing this curve you immediately rushed out to fund an account and started selling far OTM call and put spreads hand over fist at 30 DTE faster than you can say, "tail risk"?

You might have planned your early retirement next.

Brilliant!!

However, do you know what the biggest mistake most premium sellers make is?

No? Well, that's obvious because you just made it.


In regards to trading options, the expressway that leads to the divine destination of consistent profitability is a long one filled with roadblocks, speed bumps, frequent pile ups, and many off ramps for those lacking discipline, fortitude, and ice in their veins. That road often starts with a new trader learning about what an option is, how to read an option chain, and the pricing model which typically leads right into two potentially dangerous topics:

1) Probability & The Bell Curve
2) Time Decay

These two topics are dangerous for many reasons, many of which are beyond the scope of this post. However, I will touch on one of those reasons. Back to the point: Anyone that has gone through the basic teachings on these topics typically makes a grave mistake. This sets me up nicely to finally answer the question, "Do you know what the biggest mistake most options premium sellers make is?

They sell far OTM options and expect the time decay to behave like ATM options. 

Classic rookie mistake.

It often sounds something like this, "Why the heck won't these far OTM options decay?! The theta just isn't coming in like the model shows it should. They are just sitting there and the market makers are killing me because they won't fill my order to take them off at $0.05. What the heck?!"

When selling far OTM options be it calls or puts you MUST understand that the time decay is going to behave much differently than your classic ATM 30 DTE exponential time decay graph. Jim Bittman does a superb job at making this point in his classic book Trading Options as a Professional and Mark Sebastian of Option Pit fame reiterates this point in his fantastic book The Option Trader's Hedge Fund on page 94 when he says, "There is a flawed belief that option time premium decays exponentially across all strikes in the final 30 days of an option's life. This is completely flawed; in the final 30 days, studies show, only ATM options decay exponentially."

Far OTM options not only decay much differently but they also tend to hold onto their value as expiration nears. To make it more clear, theta decay for ATM options accelerates exponentially in the final 30 days to expiration but theta decay for far OTM options actually decelerates in the final 30 days to expiration. Time decay for far OTM (around 10 delta) options tends to look more like this:

That is a much different picture than the previous graph and understanding how theta decay is different among various strikes and day to expiration is going to be instrumental in your success as a trader. I cannot stress this enough. If you are going to sell premium, you must understand the differences.

This information is all well and good, but information is absolutely useless without application or action. Let me repeat, INFORMATION IS ABSOLUTELY USELESS WITHOUT APPLICATION OR ACTION.

So, what's the application of this information?

Easy. When selling far OTM options you should be selling them with more than 30 DTE and often closer to 60 DTE or more and you should be taking those positions off by the time you get around 30 DTE. By doing this, you will be taking advantage of the the way far OTM options behave in terms of time decay and all other factors remaining consistent you will be getting the most time premium decay possible on a per day basis.

When I sell far OTM options I tend to sell anywhere between 50-70 DTE and I'm out of those positions by 30-45 DTE. Armed with this new information, next time you are going to sell some far OTM premium check the days to expiration and ask yourself: Is this the optimal position?

It might be, then again - you might just be making a classic rookie mistake.

Analysis Paralysis, Thinking Too Much, and Other Psychological Traps Preventing You From Profits

Are you sabotaging yourself and crushing any chance at consistent trading profitability? 

Not sure? Read on to find out: 

Are you relatively new to trading?

Wait, let me guess: You have put in the time reading books, watching webinars, and learning all the knowledge you can but you just haven't been able to maintain a profitable trading system. 

Even better, you are a veteran trader but your old strategies just aren't working any longer due to market conditions. 

You sit at your computer staring at your Livevol X or Livevol Pro screen, there is a LOT to take in. You have quotes constantly being updated, charts, order flow, a list of positions, etc. Copious amounts of information are overwhelming your senses. You have some free capital and want to trade but instead you sit and stare. You check the charts again, draw in some trend lines and support/resistance points. You add a few more technical studies. You ponder. You check the volume, open interest, and analyze the expiration graph for the 10th time. You say to yourself, "Wait, let me just check the news and upcoming events." 

Sound familiar? We've all been there. From newbie to veteran and even pro traders. We've all had to deal with the psychological trap of analysis paralysis at some point. Sometimes taking that first action step is the absolute hardest part of the journey and this especially true with new traders or traders that haven't had much consistent success in the past. 

As I struggled to come up with the "perfect" topic for my first official blog post I thought about and scratched a long list of otherwise great ideas from theta decay at different deltas to the importance of getting a good fill and how to work the market. Instead, I decided that in the wake of my utter struggle to take the first step and write this post I'd address the elephant in the room and write about how thinking too much can actually be a problem and is a huge hurdle for many traders - especially new traders. 

Early in my trading career, like most, I struggled mightily. I was inconsistent, I jumped from one idea to the next, and I couldn't maintain profitability. I found myself making 10% in one month only to give it all back and then-some in the next month. I'd put on 5 trades in one expiration cycle and 1 or none the next. After struggling with this for a few years I discovered I was literally sabotaging myself by over-thinking, trying to outsmart the market, consistently deviating from my trading plan, and worse of all - freezing up and taking no action at all the wrong times! 

Good news! It's NOT your fault. Let me repeat, it's not your fault. Your brain is wired in this way and unfortunately it will always be this way. Better news: There is something you can do to overcome it. 

The part of your brain responsible for this psychological trap is often referred to as the lizard brain, reptilian brain, or old brain and it's found at the stem of the brain near the top of the spine. This is the part of the responsible for survival, reproduction, and our fight/flight response. This is the part of the brain that tells you to re-think that trade, to look at more indicators before putting anything on. It makes you think you need to read another book or watch another webinar to get just a little more knowledge before taking action. It also makes you think about and focus on losing, which in turn prevent you from taking action and actually trading. 

This part of the brain is also responsible for another concept that paralyzes you at the wrong time: Loss aversion. Loss aversion has been well documented and study after study has proven that we humans want to avoid a loss far more than we want to win. In fact, research shows humans have a loss aversion ratio of anywhere between 1.5-2.5. That means for every $1.00 we lose on a trade, we need to make $1.50 - 2.50 to equally offset the emotion of that loss. Loss aversion can lead to a whole host of problems, but in this context the problem it often causes in traders is an inability to put on trade or adjust a trade according to your trading plan. 

What can you do to overcome analysis paralysis, stay consistent with your trading, maintain profitability, and continuously take action that will lead to success? 

I have a four step process that will put you on the fast-track to profitability. It worked for me and although I'm not providing guarantees because I'm not a car salesman and I'm not selling anything, I can tell you that this system is based on proven research in the field of psychology. 

1. Create a Plan

Create a plan? Seriously, didn't you just say that this crazy part of the brain that is sabotaging my results causes me to go off the plan? What's the deal? 

Yes, I did and that's why this is only step one. A plan is going to remove the element of thinking and lead to instant action which can help in the creation of powerful habits that will help you stay consistently profitable. It removes the guesswork and allows you to take action without over-thinking and ever succumbing to the analysis paralysis problem. 

There are two types of plans as I see it: 

1) An overall macro plan for your account that answers such questions as: How many trades will you put on at any given time? How many contracts or what size are you going to trade? What strategies are you going to put on? When will you look to put on different strategies (60 DTE, 30 DTE, etc.)? How will you fish for trades? 

For example, part of my portfolio plan is a far OTM put spread strategy I put on anywhere from 70-50 DTE. So, at 70 DTE I start looking at the skew and juice in the far OTM put options in the RUT on a daily basis until I find optimal conditions for my put spread strategy. Whenever I see 70 DTE I don't even have to think about what I'm going to do anymore, I just act and I go check the skew and see how much juice is in those far OTM put options for selling. It's a habit now and a good one. 

2) A micro strategy or trade specific plan for entry, management, and exit of a particular position that will answer such questions as: What are optimal conditions for a certain position or strategy? What's a good price? When will you enter? What are you going to do with your position when you are down 10%? What's your profit target? When are you going to exit? Will you let those short options expire or buy them back? What are you going to do if the market open up/down 2 standard deviations tomorrow? 

For example, I have criteria outlined for entry of various strategies and I have a plan written down for the management and exit of the position BEFORE I ever put the trade on. This again, removes any barrier of thinking of too much and if nothing else just keeps me in the game. This is a very powerful technique. Now, when the market opens up or down 1.5-2 standard deviations I don't panic because I already know what I'm going to do. I don't have to look at a dozen indicators, weigh my options, check the charts, etc. I already did those things and I'm prepared to take action so I do it and do without the paralysis of analysis. 

Especially as a new trader, I cannot emphasize this enough: You MUST have a plan in place for these scenarios otherwise you will freeze up and take no action or over-think the situation and take the exact wrong action when it is precisely the time that demands quick, precise, and deliberate action.

2. Add Accountability

What are you going to do if you don't follow your plan from step one? How will you hold yourself accountable and enact consequences for not following through? A trading partner, trading group, or community like the Livevol Community are perfect for accountability. Use them to your advantage to set yourself up for success. Check-in regularly, tell people what you are going to do, then be accountable for your actions. If you didn't put on a weekly SPX Iron Condor like your plan calls for, why not? You better be able to explain. 

If you follow through and stick to the plan, celebrate your success even if the trade is a loser. Give yourself a pat on the back. If you didn't, do NOT pretend it didn't happen and do NOT beat yourself up. We are all human and make mistakes. Admit it and examine why you failed and put in place processes that will help you succeed next time. 

3. Visualize

Visualize yourself taking action and performing the actions you listed in your plan. Michael Phelps, the most decorated Olympian in history would visualize himself swimming his perfect race each night before he went to bed. He also used it to play through scenarios of how he would react and what he would do if things didn't go as planned. For example, Phelps set a world record at the Beijing Olympic games and took home the gold despite the fact his goggles filled with water during the race and he couldn't even see. 

How did he do this? He had already visualized this previously and knew exactly how to handle this situation. It is a technique many very successful people use and attribute to their success. Additionally, visualization has been shown to increase your ability to take action and avoid the analysis paralysis problem. Visualize yourself putting on a trade, going through the mechanics of working the order, getting filled, making that adjustment when the market it down huge, etc. It will increase your odds of sticking to your plan and will allow you to take action instead of staring at your screen with information overload.  

4. Tell yourself it's okay to fail

Lastly and maybe most importantly, you have to understand that failure is going to be part of the process. Even the best strategies with the highest odds of winning occasionally lose. You must understand that a losing trade is not only okay, but actually a good thing! 

Uh, did you just say that putting on a dog of a trade is a good thing? 

Yep. Because it is an opportunity to learn, correct mistakes, and put in place processes or procedures to avoid them in the future. It's a chance to become a better trader! Think about it, how much have to ever learned from a trade in which everything went perfectly according to plan? You put the trade on in the perfect market conditions for the trade, the market acted as expected, you didn't have to adjust, and you took the trade off for your profit target. That experience, while it makes us feel good doesn't really make us a better trader. Anyone can do that. 

What separates the good traders or even the great traders from everyone else is being able to deal with failure, being able to manage the position when things don't go according to plan, and constantly getting better by learning from previous experiences and mistakes. A losing trade is a perfect opportunity for a post-mortem analysis to get better at the craft of options trading. Don't waste those opportunities. Your account balance will thank you. 

An Option Pit Exclusive:
Using Volatility to Build Options Spreads 

Wednesday, February 19, 2014
5pm CST/6pm EST
Cost: FREE

Register Here!

How does a trader know what strikes to buy and sell?

The key is to understand volatility. In this afternoon seminar, Mark Sebastian, of Option Pit, and Kevin Nichols, of LiveVol, explain and walk through how traders can build better trades using implied volatility.

This is a can't miss for all levels of traders!

Register Here!

TraderMinute $100,000 Challenge. Join for Free.

Get In The Trading Seat With The Man Who Turned

$3K Into $100K….Twice…


And it only took him 4 months each time. He’s about to go at it again and you are invited to join in.


When I heard about this, I had 2 questions:

“He
did it twice…?”
And
“How did he do it?”


You might be wondering too. And they weren’t just 2 lucky “lottery” type trades either.


In fact, each time he did it, he made a series of option trades that took an initial $3,000 (real money) investment and trade-by-trade ballooned
it into $100,000 in only 4 months.

What’s more exciting is I’ve arranged for you to sit in the passenger seat while he does it again.

He’s agreed to let you watch and place the same live option trades right along with him.

He’s not just trading off the cuff. He’s got some very sound rules that he follows to manage his risk. You’ll learn them later in this letter.

It’s rare that I find a trader with a good enough service and track record to put my neck out for by referring my valued clients over to them.

I love my clients, this group in particular, because you are serious about your trading. I know because you are reading this letter.

That’s why I would never want to risk my relationship with you by recommending a shabby product. And by shabby, I’m not talking about a bad looking product cover. I’m talking about results.

And this opportunity is just too good. And his track record speaks for itself...as you’ll see.

That’s why I see this as a way to strengthen my relationship with the small segment of clients I am inviting to this exclusive opportunity.

It’s one of those things I would invite my own mother-in-law to do. (Then again, my mother-in-law likes a good challenge.)

Starting on November 15th, this trader will get in the hot seat again with a goal of turning $3,000 into $100,000 in 4 months for the third time.

He’s opened up 30 new seats for the launch of this next challenge.

Those seats are filled on a first-come, first-serve basis. And this letter was sent to over 8,000 people, many of which are reading right now along with you.

I promise these seats will be gone in a hurry.

I don’t want to be too long-winded because I know there are some who are reading this letter and won’t even finish it for fear of missing out. They will simply see that the first 30 days are free and sign up.

They’ll worry about the rest later.

To sign up click here and use the discount code LIVE569!

IMPORTANT: To get 30 days free, you must apply the
discount code at checkout. CODE LIVE569



It’s a rare opportunity to have someone with this track record agree to let you look over his shoulder during a challenge like this, let alone allowing you to trade the same trades with him.


But I’ve got to admit, it’s not for everyone. Certainly not for the faint of heart.

If you...

1.Don’t believe it’s possible. (And you don’t want to be made a believer)
2.Are unwilling to follow his option trades exactly.
3.Don’t have the $3K investment and don’t want to use virtual money or just sit on the sidelines and watch.
4.Would hold hard feelings if you came up shy of $100K or lost money

I would kindly ask you not to participate in the $3,000 to $100,000, 4 month challenge.

On the other hand, if you mimic his trades this time around and he reaches his goal for the third time, birthday’s and Christmas will be very different at your house.

The look on the kids or grandkids faces when you surprise them with that big something they would never expect would be an unforgettable moment — one that would single handedly give your life meaning.

If that’s not your idea of a good time, or you don’t have family, just think what $100,000 could to springboard your retirement and your current lifestyle. Not to mention your story-telling and “bragging rights.”

The people you know would be so proud of you.

If nothing else, you can say you tried it.

What an opportunity!

Besides the possibility of turning $3,000 into $100,000 in the next 4 months, the knowledge that you can acquire from an experience like this is extremely hard to come by. Knowledge that can really only be gained by doing it.

Just the education factor alone. You will learn volumes by simply participating.

And if you successfully reach the $100K goal…

• Take the next 3 months off and go to Paris with someone special. You deserve it!
• Hit up an African Safari.
• Head to a third world countryand donate your time and talents for a while
• Put the money into some nice income stocks and make the payment on a luxury car or boat just from the
  dividends.
• Or put it into a few of the
  next big momentum stocks and watch ‘em ride.

Whatever your goals, $100K will help you arrive.

$100,000 is a lot of money to acquire in just 4 months. And I think you will regret not taking advantage of this extremely rare opportunity.

And I don’t mind if you just sit on the sidelines and watch or just place the trades in a virtual account. You can still get the first 30 days free and have the valuable experience.

Just don’t be disappointed at the end if the goal is reached and those who made real trades are high on actual profits.

So here’s the deal:

I’ve worked out an agreement where my clients can try this service free for the first 30 days of the challenge. You are responsible for your own investment capital or virtual account.

And if you’d like to continue with the challenge after the first month, you will need to pay a reasonable website fee (only $599 a month) for the next 3 months on a month-to-month basis, which means you can cancel anytime and pay no more.

That’s great news because it minimizes the risk of the challenge. If you feel like you just aren’t enjoying it or aren’t going to come out as profitable as you hoped, you can withdraw within the first 30 days — meaning you paid nothing.

If the experience and profits or potential profits justify the $599 per month, continue.

It will surprise me if that even becomes a concern because this trader has to get results in order to repeat the challenge every 4 months. He simply can’t survive any other way.

You’ll be participating in his 12th challenge. The 11th challenge is just wrapping up. And his performance on the 1o completed challenges is enough to keep even the most seasoned traders coming back for the next challenge.


Twice he has successfully turned $3,000 into $100,000.
Four times he has lost his entire $3,000 investment.
One time he had a $3,800 gain.
One time he had a $19,000 gain.
One time he had a $21,000 gain.
One time he had a $47,000 gain.

That means the winning challenges add up to gains of $290,800 while the losing challenges add up to a small loss of $12,000. That’s in only 36 months of cumulative trading time.

Not only do you get to watch it LIVE, but you will be sent emails and text messages with ticker symbol and fill prices when a live trade is made.

It’s easy to see why 50 seats will likely be gone within the hour.

To sign up click here and use the discount code LIVE569!

IMPORTANT: To get 30 days free, you must apply the
discount code at checkout. CODE LIVE569

Now, I mentioned you would learn the rules of the challenge in this letter. Here they are:


Rules of the Game:

• Start trading account with $3,000.
• No margin trading.
• After achieving an account value of $10,000, the initial $3,000 in capital is removed.
• After achieving an account value of $40,000, $10,000 is removed.
• Challenge ends after 4 months regardless of profit level.
• All trades are sent out in real time via text and email and are done live via video on the website
• Trades are subject to happen anytime the CBOE options market is open. Trades are also subject not to happen. Sitting on ones hands at times is a valuable trade strategy.
• Trade commissions are not taken into account due to the difference in commission charges from brokers.
• TraderMinute pros do not suggest extra trades for the sake of playing catch up.
• As reward goes up, so does risk. (a 30% loss on a $3,000 account is a little different than a 30% loss on a $60,000 account)
• Trades made as part of the 3K-100K challenge are not considered investment advice! This is a game, not an investment strategy. Loss of some or all capital is a potential reality.
• Trade entries and exits suggested by clients or 3rd parties will not be considered. (This is done in order to protect the suggest-or from feeling bad if they are wrong. You are more than welcome to disregard our entries and exits)
• The $3K-$100K challenge is a learning exercise, not a retirement strategy. Please be mindful of your risk. TraderMinute and/or its affiliated companies are not responsible for losses sustained.
• Traderminute recommends that all traders use a virtual account to simulate trades.
• Please use Common Sense!

What a blast! It’s fun to login to the group and experience live trades as they create substantial profits in a short period of time.

And to watch the personal attention this trader gives you as you type questions into the live chat box and receive a near instant response on live video or chat…

Each time a trade is placed, you watch it on the live video and quickly get an email and text message with details about the trade.

Usually there are 2 to 3 trades per week that each last 5 to 7 days depending on market conditions.

Don’t let this opportunity run past you. Grab onto this rare experience and maybe you’ll be part of the next group to turn $3K into $100K over the next 4 months.

Please hurry! If you’ve read this far, the 50 seats I mentioned earlier may already be
taken. So don’t delay for another second.

To sign up click here and use the discount code LIVE569!

IMPORTANT: To get 30 days free, you must apply the
discount code at checkout. CODE LIVE569



See you in the live sessions.

Sincerely,

Your Friends @ Livevol


P.S.

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Facebook (FB) - Update: Earnings Preview; Skew Bends Back Down; Did the Market Self-Correct a Bubble Before it Burst?

FB closed Tuesday trading at $49.40, down 1.7% with IV30™ down 1.7%. The LIVEVOL® Pro Summary is below.



Facebook, Inc. (Facebook) is engaged in building products to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

This is a quick follow up the article I posted on Friday 10-25-2013. You can read that post by clicking n the title, below:

Facebook (FB) - Reverse Skew; Upside Risk as Volatility Explodes and Stock Hits All-time Highs. Are We in a Bubble?

There was a fascinating phenomenon in FB skew. I've included a bunch of snippets from that prior article, below. But, let's start with the Symbol Summary from that day:



So we can see the stock slipping, and oddly, the volatility slipping even as we approach earnings.  Note that on Tuesday,the Dow as up 0.7% and S&P 500 was up 0.6% as the VIX rose 0.8%.

There was an unbelievably negative report out today on FB basically crushing it as an advertising platform, which IMHO was way overblown.  Here are some snippets:

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Forrester, the respected market research group, has just published a brutal report on Facebook (FB) based on a survey of 395 marketing executives. The conclusion: "Facebook creates less business value than any other digital marketing opportunity ... [so] ... Don’t dedicate a paid ad budget for Facebook."

Facebook responded that the report was "illogical and ... irresponsible."

Source: Business Insider via Yahoo! Finance; Facebook is Doomed: Forrester Says Ads Tell a Sad Story.
---

I think the report fails to recognize that FB stock as been ripping b/c of mobile ads, not desktop ads. There's a lot more I find curious about the note, like a basic disregard for the entire marketing profession's ability to understand value in general and online marketing in specific, but I'll leave that to the reader.

The story I want to discuss is much more interesting (to me).  Here are some snippets from the prior post, and a dramatic change over the last two days to the phenomenon I wrote about.
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Friday's Blog

10-25-2013
We can see that the options recently hit an all-time high in the implied and are trading higher to any prior earnings release other than literally the first one after IPO. So, the option market reflects risk, right? Well, yeah, but not the kind you're thinking of...

Let's turn to the Skew tab as of Friday's close.



I have only included the Nov1 weekly options (earnings are due out 10-30-2013). So this is pure earnings volatility we see. And what do we see?...

Notice how the OTM calls are priced higher than the OTM puts. yeah, that's right, there is reverse skew in FB options reflecting greater likelihood of an upside move than a downside move. So, with the stock exploding to new all-time highs, this $126 billion market cap social media company is showing upside potential over downside risk in this earnings release. Whoa...

And is this "normal?"

No, on two counts.

1. Option skew normally shows higher volatility in the OTM (out-of-the-money) puts than OTM calls. You can read about what option skew is and why it exists by clicking on the title below:

Understanding Option Skew -- What it is and Why it Exists

2. More specific to FB, just look at the option skew on 7-24-2013 (the day of the last earnings release)



I know it's not the prettiest picture of all time due to some scaling issues, but this was a $26 stock ahead of earnings, you can see that strike price on the horizontal axis. Note how the strikes to the right (OTM calls) of ATM are flat, while the strikes to the left (OTM puts) are elevated. Yeah, FB didn't show this reverse skew last time. And more... the IV30™ into the last earnings report was 46%; today it sits just below 74%.

We're talking about hugely elevated risk, a decided upside bias in the option market and a ripping stock. You know what I call that?... A bubble... And you know what happens to bubbles before they burst?... they rise.
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But today, my how things have changed. Let's look at the Skew Tab as of the close on Tuesday and once again the Skew Tab from Friday, below:

Tuesday


Friday


Note how that upside skew has bend down over the last two trading days.  In English, the upside potential that the option market reflected in the OTM calls has totally reversed. Now the OTM calls show lower volatility than the ATM options and in fact have started to even out with the OTM puts.

I tell you something else... I don't think it was this research report, I think it might actually be the market "self correcting" a bubble before it forms.  As I saw it last time, if the skew continued to rise to the upside and then FB stock exploded up on perhaps good but not unbelievable earnings (like GOOG did; you can read that post here: Google (GOOG) - Are We in a Bubble? Earnings Good, but Stock Hyper Reacts to Upside), then I felt like we were squarely in a bubble (no reverse pun intended).

I actually see this easing of the upside skew as a good sign for the broader market. Now, let's see what FB delivers on earnings and the stock reaction to that news.

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Delta Air Lines (DAL) - Stock Breaches All-time Highs as Volatility Breaches Multi-year Lows

DAL closed Monday trading at $26.14, down 0.6% with IV30™ down 1.4%. The LIVEVOL® Pro Summary is below.



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Delta Air Lines, Inc. (Delta) provides scheduled air transportation for passengers and cargo throughout the United States and around the world. The Company’s route network gives it a presence in every domestic and international market.

I found this stock using a real-time custom scan. This one hunts for depressed vols. I know this is an airline and that feels kinda boring, but it isn’t. This has a huge stock and volatility story. Trust me...


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 LNG 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, although you may not have known it, DAL has been absolutely ripping. This was a $7 stock a couple of years ago and is now up more than 250%. The annual low is ~$9. All of a sudden, this doesn’t sound like a boring airline stock. DAL just recently crossed its all-time high (there was a re-org or bankruptcy or something, so history only goes back ~seven years). And what is happening as this stock has exploded? Volatility has been collapsing, naturally… naturally?

Let’s turn to the two-year IV30™ chart in isolation.



We can see a steady decay in implied volatility and after the last earnings release (the blue “E” icon represents earnings) another complete implosion. DAL is right on multi-year lows in volatility as the stock breaches all-time highs in stock price.

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



Across the top we can see that Nov vol is priced to 30.25% and Dec is priced to 31.05%. So, for those who are patient, there’s a lot of depressed volatility out there – this is not focused on the immediate-term expiry. This is one to keep an eye on. What happens to airline stocks if the economy moves one way or the other in an abrupt manner? Well, the stock usually moves more than multi-year lows in implied volatility. Right?...

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Facebook (FB) - Reverse Skew; Upside Risk as Volatility Explodes and Stock Hits All-time Highs. Are We in a Bubble?

FB closed Friday trading $51.95, down 0.9% with IV30™ down 0.7%. The LIVEVOL® Pro Summary is below.



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Facebook, Inc. (Facebook) is engaged in building products to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

This is all about earnings and a phenomenon that appears in FB options that has some fascinating implications about sentiment (about FB and in my opinion, about the market). For those of you that want the headline up front, here you go: FB option skew bends up to OTM calls ahead of earnings.

For those of you that want the details or have no idea why that matters (or even what that is)... here we go.

Let's start easy, with the two-year FB 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 two phenomena that pop out at me:

1. The stock has been ripping, up nearly 200% from an annual low of $18.87.

2. FB spasmed off of the last earnings release, rising from $26.51 to $34.36 in one day, or a 30% rise. OK, keep hat in mind for later.

Next, let's turn to the two-year IV30™ chart in isolation, below.



We can see that the options recently hit an all-time high in the implied and are trading higher to any prior earnings release other than literally the first one after IPO. So, the option market reflects risk, right? Well, yeah, but not the kind you're thinking of...

Let's turn to the Skew tab as of Friday's close.



I have only included the Nov1 weekly options (earnings are due out 10-30-2013). So this is pure earnings volatility we see. And what do we see?...

Notice how the OTM calls are priced higher than the OTM puts. yeah, that's right, there is reverse skew in FB options reflecting greater likelihood of an upside move than a downside move. So, with the stock exploding to new all-time highs, this $126 billion market cap social media company is showing upside potential over downside risk in this earnings release. Whoa...

And is this "normal?"

No, on two counts.

1. Option skew normally shows higher volatility in the OTM (out-of-the-money) puts than OTM calls. You can read about what option skew is and why it exists by clicking on the title below:

Understanding Option Skew -- What it is and Why it Exists

2. More specific to FB, just look at the option skew on 7-24-2013 (the day of the last earnings release)



I know it's not the prettiest picture of all time due to some scaling issues, but this was a $26 stock ahead of earnings, you can see that strike price on the horizontal axis. Note how the strikes to the right (OTM calls) of ATM are flat, while the strikes to the left (OTM puts) are elevated. Yeah, FB didn't show this reverse skew last time. And more... the IV30™ into the last earnings report was 46%; today it sits just below 74%.

We're talking about hugely elevated risk, a decided upside bias in the option market and a ripping stock. You know what I call that?... A bubble... And you know what happens to bubbles before they burst?... they rise.

Finally, let's turn to the Options Tab, below.



We can see the Nov1 weekly 52 strike price reflects a $7.10 move off of earnings from $52. I have also highlighted the $46 strike puts and the $58 strike calls. Note both of these are $6 out of the money, but the calls are worth $1.47 (122.45% volatility) and the puts are worth $1.09 (118.80%). That is a specific example of the skew shape being "reversed," where the OTM calls are priced higher than their congruent OTM puts.

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This is trade analysis, not a recommendation.

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Archer Daniels (ADM) - Stock Breaches 5-year High as Volatility Breaches Annual High into Earnings. Is This Equilibrium?

ADM is trading $39.55, up 0.9% with IV30™ up 6.1%. The LIVEVOL® Pro Summary is below.



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Archer-Daniels-Midland-Company, is engaged in the processing of oilseeds, corn, wheat, cocoa, and other agricultural commodities. The Company manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.

I found this stock using a real-time custom scan. This one hunts for elevated vols. Now this firm does have earnings due out on 10-29-2013 (BMO), but the stock price has just breached a five-year high. This story has some teeth to it.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year 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).


Check out that stock rise since Nov of last year.  We're looking at a stock that went from ~$24 to now ~$40 or a ~70% in less than a year.  And just to be clear, this is a $26 billion firm, so this is serious money. The stock price today has eclipsed a five-year high, so whatever management has been doing, from the outside looking in, it looks pretty damn good... of course that's from the outside looking in (which has its limitations).

But this is also a volatility story, so let's turn to the one-year IV30™ chart in isolation, below.


We can see the implied has now reached an annual high, but we can also see that in general the implied has been rising with the rising stock price which is "not normal," but is revealing.  I'd say while ADM has grown $10B+ in market capitalization, the option market doesn't quite reflect equilibrium... in fact, it reflects quite the opposite, which is growing risk.

The earnings report due out in a few days could be critical in determining if ADM's rise becomes a comfortable new valuation for the firm (that would be seen if the stock price remains steady or increases off of the release) or if the lack of equilibrium reflected by the option market reveals itself to be true in an abrupt downward stock move. We shall see...

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



Across the top we can see the monthly vols are priced to 34.59% in Nov and 28.12% in Dec.  That vol diff is due to earnings.

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Finisar (FNSR) - Gotcha! Volatility Spikes Up as Stock Dips; Has the Volatility Trend Been Broken?

FNSR is trading $24.32, down 5.9% with IV30™ up 15.3%. The LIVEVOL® Pro Summary is below.



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Finisar Corporation develops and provides fiber optic subsystems and network performance test systems which enable data communications over local area networks, or LANs, and storage area networks, or SANs. The Company is focused on providing optical subsystems for networking and storage equipment manufacturers that develop and market systems based on Gigabit Ethernet and Fiber Channel protocols.

I last wrote about FNSR on 9-23-2013, noting that the volatility had gotten quite depressed to the point where it had breached an annual low with an IV30™ of 36.88%. You can read that post by clicking on the title, below.

9-23-2013: Finisar (FNSR) - Volatility Breaches Multi-year Lows as Stock Trades at Multi-year Highs


Today I found FNSR using the real-time custom scan that hunts… you guessed it… for volatility gainers on the day.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The two-year FNSR 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 a beautiful price appreciation over the last year (ish) from an annual low of $10.95 to now ~140% higher. Wow… We can see to the far right of the stock chart that FNSR hit a multi-year high just a few days ago, but has fallen off since then, with a rather abrupt 6% drop today. I do note that the stock traded as low as $22.83 today, so it has rebounded substantially off of the day lows.

But this is a volatility note, so let’s turn to the two-year IV30™ chart in isolation, below.



I note three phenomena here:
(1) As I have shown with that yellow line, the IV30™ has systematically been dropping for this firm over the last two-years. This is a time period when the stock has been rising (in general).
(2) The peak volatility into earnings (see the green circles and note that the blue “E” icons represent earnings dates) has been trending lower as well. The move hasn’t been monotonic, but it is noteworthy, with the first earnings in this chart showing an IV30™ of 99.73% and the last earnings showing an IV30™ of 58.58%.
(3) Check out the vol pop today (the far right of the chart). FNSR had been at multi-year lows in the implied until the last few days. The stock has dropped and the vol has risen.

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



Across the top we can see the monthly vols are priced to 45.59%, 51.58% and 47.16% for Nov, Dec and Jan’14, respectively. Dec expiry has an earnings event embedded in it. I would watch that level – the question is whether that volatility will end the trend of lower peaks of IV30™ into earnings (as I suspect it may well) or if it will continue the trend. If it continues the trend and ends up in the low 50% range (or lower), that would be an interesting one to watch for potentially under priced earnings volatility.

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This is trade analysis, not a recommendation.

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Safeway (SWY) - Stock Pops to 5-year high on Takeover News; Implied Volatility Rockets Up 40%

SWY is trading $35.79, up 8.8% with IV30™ spiking up 42.0%. The LIVEVOL® Pro Summary is below.



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Safeway Inc. (Safeway) is a food and drug retailer in North America. As of December 29, 2012, the Company had 1,641 stores. The Company’s United States retail operations are located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. SWY is the top one on th list, and it has a stock story attached to it as well.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The HTZ 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 a remarkable price appreciation not just over the last two-years but over the last two-months. Even over the last year, this stock has risen from ~$16 to now over $35, so more than a 100% rise in an $8 billion market cap company. The high reached today is not just a two-year high, but more than a five-year high, dating well back into 2008.

So what's going on today?... It's buyout rumor time... here is a quick news snippet:

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Safeway Inc. shares jumped Wednesday on reports that several firms are considering a buyout of the supermarket chain.

THE SPARK: Reuters reported Tuesday that a handful of buyout firms, including private equity firm Cerberus Capital Management LP, are exploring a full or partial buyout of Safeway. The report, citing unnamed sources familiar with the matter, said it could potentially shape up to be one of the largest leveraged buyouts since the financial crisis.

THE BIG PICTURE: Safeway, based in Pleasanton, Calif., declined to comment on the report.

The company, like many mainstream grocers, is facing intense competition from dollar stores and big-box retailers such as Target Corp. and Wal-Mart Stores Inc., all of which increased their emphasis on food amid the recession.

Source: AP via Yahoo! Finance; Safeway shares jump on buyout report
---

not only is the stock popping on the news, but so is the volatility. Let's turn to a two-year IV30™ chart in isolation, below.



I have circled the IV30™ pop today in yellow. before thisnews, the implied in SWY was actually quite low as the stock price was making its upward march. The news of a potential buyout has changed all of that as the IV30™ has spiked up more than 40%.

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



Across the top we can see the monthly vols are priced to 37.95% for Nov and 37.88% for Dec.  It's fascinating that the vol pop is essentially equal in the front two-months.  the option market reflects elevated risk from this news for an extended period of time, rather than a short-term event.

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This is trade analysis, not a recommendation.

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Angie's List (ANGI) Vol Hits All-time Highs; Earnings May Signal Solvency Issues; Will the Company Make it?

ANGI is trading $15.38, up 0.13% with IV30™ down 0.9%. The LIVEVOL® Pro Summary is below.



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Angie’s List, Inc. (Angie’s List) operates a consumer-driven service for members to research, hire, rate and review local professionals for critical needs, such as home, health care and automotive services.

I found this stock using a real-time custom scan. This one hunts for elevated vols. ANGI has earnings due out tomorrow AMC, so now is the time to examine the volatility, and of course, it should be elevated into the earnings event.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year ANGI 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 a number of stock gaps over the last year (highlighted in yellow). Many of those stock moves are due to earnings releases (the blue “E” icon represents earnings). But, the most recent move down from $23.89 (9-27-2013) to today’s price of ~$15 was not explicitly due to an earnings release yet it has seen the stock lose nearly 50% of its value in less than a month. Yikes…

So what was the news?... It was actually quite big – ANGI has cut their membership prices by 75% (from $40 per year to $10 per year). The stock market didn’t like that… And now we have earnings due out which means more information, more speak from top management and more questions from top tier analysts. Let’s turn to the ~all-time IV30™ chart for ANGI in isolation, below,



We can see the IV30™ is essentially at an all-time high. We can also see remarkable spike up from the bad news combined with the approaching earnings release. The IV30™ climbed from 57.65% (9-27-2013) to now just under 100%. So as the stock has fallen by ~40%, the IV30™ has risen by ~80%. And earnings, they are here after market close (AMC) on Wednesday 10-23-2013…

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



Across the top we can see the monthly vols are priced to 101.95% for Nov and 81.59% for Dec. That vol diff is due to the earnings release. A fair question is, considering the firm hasn’t turned an annual profit yet, could the earnings news also be a test of solvency for the firm as a going concern? I guess we’ll see…

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Livevol Core Provides Active Retail Traders Access to Professional Options-Trading Tools

The new “light” version of Livevol Pro levels the playing field for non-professional options traders through sophisticated tools for trade idea generation and analysis.

The new Livevol Core options research and analysis platform gives individual active traders access to information and tools that previously were only available to professional traders.


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Livevol Core is based on the proven decision-making processes of professional traders and market makers with long-term trading careers. Core includes many of the features of Livevol Pro, the company’s flagship analytics platform that has long been used by institutions, hedge funds, and professional traders.

Livevol Core delivers a wide range of data, calculations, alerts, and visualizations needed to identify successful trades. Major features include intelligent market scans, order-flow information, proprietary implied-volatility calculations, and real-time market statistics.
Market Scans

Livevol Core offers more than 80 comprehensive scans that were built by professional options traders and have been used by sophisticated traders for years. Intuitive filters help sort through market noise, enhancing the users’ ability to get the information they need to make informed decisions.
Users can scan stocks based on criteria such as earnings, volatility, price, and order flow. Option strategy scans can identify strike-specific and actionable trading opportunities. For example, real-time ranking of covered calls by standstill return across all industries can be done with a keystroke. Furthermore, filtering criteria can be customized using an easy drag-and-drop utility.

Other Important Features

1. Order Flow and Market Statistics — Real-time market statistics provide a view into bullishness or bearishness of the market, giving a context for trading decisions. The day’s largest option trades are highlighted with additional statistics on each underlying stock including premium traded, net deltas, call/put ratios, average and current option volume, as well as the 52-week price and volatility ranges.

2. Sector Information — Order-flow aggregation shows where the option market is getting long or short. Volume and volatility alerts identify the most active issues in each sector. The at-the-money (ATM) covered call grid allows the trader to compare the highest yields across and within sectors.

3. Alerts —Users can set price and volatility alerts for stocks. The Livevol 30-day implied volatility measurement is based on a proprietary calculation, which develops the equivalent of the VIX™ for each individual stock.

4. Live Skew — This patent-pending, 3D feature visually compares the relative costs of out-of-the-money (OTM) options across every expiration cycle.
Pricing and Availability

Livevol Core is available as a web-based platform for $79 per month on a subscription basis. Product information, a demo and a free 30-day trial are available at www.livevol.com/livevol-core.

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This is trade analysis, not a recommendation.

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Google (GOOG) - Are We in a Bubble? Earnings Good, but Stock Hyper Reacts to Upside

GOOG is trading $1008.89, up 13.51% with IV30™ down 13.7%. The LIVEVOL® Pro Summary is below.



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Google Inc. (Google) is a global technology company. The Company’s business is primarily focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products.

So the story today surrounding GOOG is simple, an earnings blowout. The question is, do these numbers really mean GOOG is worth 13.5% more today than yesterday? If yes, then OK... very nice. But if not, this could be a sign of an overall market bubble forming.

Let’s start with the news (results) from earnings:
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EPS: $10.74 Actual vs. $10.34 Estimated (a 3.87% out performance)
Revenue: $11.92 billion Actual vs. $11.7 billion Estimated (a 1.88% out performance)
26% annual rise in in paid clicks
8% annual drop in average price per click
Source: Everywhere, but in particular The Motley Fool and AP.
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Let’s turn to the two-year GOOG Charts Tab, below. The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see a two year stock rise from $580.70 to now over $1000 or nearly a 75% rise. Who says mega caps can’t go up huge?...

On the volatility side I actually don’t see anything remarkable. The IV30™ seems well behaved. Let’s look at an isolated IV30™ chart over the last two-years, below.



The blue “E” icons represent earnings dates and I do note how the peaks of IV30™ into earnings continue to get lower. Here’s what has my attention… A mega cap just went up $40 billion in market capitalization in one day on very nice earnings (but not blowout earnings by any stretch of the imagination). Take that with falling volatility (which means lower future looking risk) and I feel like we may be getting to, dare I say, a bubble? I mean huge stock moves up and lower future looking risk on kinda so-so out performance earnings news… in a mega-cap…

Finally, let’s turn to the Options Tab.


Across the top we can see that Nov vol is priced to 19.01% while Dec is priced to 19.56%. But who cares, GOOG is worth $340 billion.

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The Men's Wearhouse (MW) - Takeover Bid and Option Market Reaction Say One Thing: This Stock is Gonna Move.

MW is trading $46.19, down 0.05% with IV30™ up 25.7%. The LIVEVOL® Pro Summary is below.




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The Men’s Wearhouse, Inc. is a specialty retailer of men’s suits and a provider of tuxedo rental product in the United States and Canada. At January 28, 2012, the Company operated 1,166 retail stores, with 1,049 stores in the United States and 117 stores in Canada.

The news behind MW is simple, a takeover bid was made by Jos. A. Bank Clothiers in the second week of October and that bid has been rejected by MW. Here's a quick re-cap with news snippets:

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10-9-213
Jos. A. Bank Clothiers disclosed Wednesday that it made the unsolicited proposal in September to buy Men's Wearhouse for $48 per share in cash, a 42 percent premium at the time. In rejecting the deal, Men's Wearhouse said it wasn't in the best interest of its shareholders or the company.

But the leaders at Men's Wearhouse rejected the offer about two hours after it was publicly disclosed, calling it "opportunistic" and "inadequate."

It later announced it would adopt a shareholder rights plan, also known as a poison pill, designed to thwart anyone who buys a big chunk of its stock without board approval: 10 percent for a person or group, or 15 percent for a passive institutional investor.

Source: AP via Yahoo! Finance Jos. A. Bank offers $2.3B for Men's Wearhouse, written by Anne d'Innocenzio and Tom Murphy, AP Business Writers
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The interesting thing about MW is that it just showed up on my custom scan that searches for single day IV30™ gainers.


Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

Something is afoot. Let's turn to the two-year MW 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, I've highlighted the move off of the takeover bid, when the stock spiked from $35.24 to $45.03 in one day.  The almost instantaneous rejection by MW (just hours after the bid) kept the stock price below the $48 takeover bid (yes, I know there are other reasons it would trade below $48, but this is the big one).  The stock price has sort of meandered higher to just over $46 as of this writing, but it's the volatility that is interesting.

Let's turn to the two-year IV30™ chart in isolation, below.


Totally separate from this takeover news, just check out how hypnotic that earnings volatility is (the blue "E" icons represent earnings dates).  Anyway, onto the story at hand...

We can see that the implied actually rocketed higher on news of the takeover, which is in fact a misrepresentation of the facts, the volatility spiked b/c of the negative reaction MW has to the bid.  Normally when a takeover bid is made, volatility collapses, but in this case the quick rejection from MW and adoption of a sort of takeover defense made the stock price ore risky, not less risky.  I then note that after IV30™ peaked at ~ 44%, it fell again... until today. The implied has popped more than 25% today and that means the option market reflects higher stock risk in the near-term.

This whole thing gets even more interesting when we look at the Options Tab, below.


Noe how the Nov 50 calls are worth ~ $0.80 (mid-market), and the Nov 41 puts are worth ~$.73.  Keep in mind this was a $35 stock pre-takeover bid.  So the questions that remain to be answered are:

(1) Will a higher bid come into play?  The option market reflects a non-trivial chance of this occurring (see the Nov 50 calls).

(2) Will the bid go away?  the option market also reflects a non-trivial chance of this occurring (see the Nov 41 puts).

3) Will either of those things happen in the near-term (next 30 calendar days)? Yet again, the option market reflects a non-trivial chance of this occurring (see the IV30™ rise today).

In English, buckle-up, MW doesn't look like it will be a $46 stock for very long.  Whether it's higher or lower I dunno, but the option market reflects it will be one of those rather than neither.

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