Digital River (DRIV) - Puts Trade, Vol Pops

DRIV is trading $34.14, down 2.1% with IV30™ up 8.8%. The LIVEVOL® Pro Summary is below.



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Digital River, Inc. is engaged in providing end-to-end global e-commerce and marketing solutions to a variety of companies in software, consumer electronics, computer games, video games, and other markets.

The company has traded over 6,600 contracts in the first hour on total daily average option volume of just 1,447. Puts have traded on a 60:1 ratio to calls with ~5,900 Mar 35 puts trading. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the puts are mostly opening (compare OI to trade size). When looking down the entire option chain for DRIV, I don't see any OI larger than 2,700, so this volume is large. The best I can tell, the puts look like mostly purchases.



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



I like the shape of the skew in the front two months -- specifically how the front month upside (red) is elevated to the back (yellow).

Finally, the Charts Tab (6 months) is 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 stock collapse on earnings a few weeks ago. In terms of vol, we can see how the IV30™ is creeping passed the long-term historical vol (HV180™).

Possible Trades to Analyze
1. Calendar spread the upside:
a. Buy the Mar/Apr 35 call spread (~ 2.5 vol points scalp)
b. Buy the Mar/Apr 38 call spread (~ 4 vol points scalp)
Of course, the other strikes are reasonable to examine as well.

2. Bet with order flow
The Mar 34/35 put spread costs ~$0.55 with $0.86 in parity. That seems like a reasonable trade to analyze if you're bearish, but don't want to risk too much capital. The Mar 32/33 put spread costs ~$0.30 and scalps about 3 vol points.

With vol exploding and the stock dropping again, this might be one to watch for a large skew divergence between months or intra-month. If a large enough vol difference opens up, then re-examining the trades may be interesting.

This is trade analysis, not a recommendation.

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Clean Energy Fuels (CLNE) - Vol and Stock Pop on UPS Deal

CLNE is trading $13.13, up 9.8% with IV30™ up 13.2%. The LIVEVOL® Pro Summary is below.



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Clean Energy Fuels Corp. is a provider of natural gas as an alternative fuel for vehicle fleets in the United States and Canada.

Thew news today:
-----------------
UPS, the world’s largest package delivery company, has contracted with Clean Energy Fuels Corp. to fuel its new fleet of 48 liquefied natural gas (LNG) package transportation trucks at a new truck fueling station near UPS facilities in Las Vegas, Nevada. The agreement has a seven-year initial term with three one-year renewal options. Clean Energy will design, build, own and operate the station, which is set for opening in the first half of 2011.
Source: Clean Energy Fuels Corp.
-----------------

There's also an excellent article posted by OptionMonster (written by David Russell). You can read that here:
Clean Energy surges as the bears give in

Finally, note that the company is due to report earnings on 3-10-2011.

The company has traded nearly 8,000 contracts in the first four hours on total daily average option volume of just 1,612. Calls have traded on a 7.7:1 ratio with puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. The Mar 12, 13, and 14 calls are active. The order flow looks to be purchases and the vol spike is more confirming evidence, but I'm not sure as at least some of the trades look like they were offered down.



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



An interesting phenomenon has developed -- the upside skew in Mar (red) has bent up, while the upside skew in Apr (yellow) has bent down. This makes an interesting trade to analyze.

Finally, the Charts Tab (6 months) is 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 stock pop today and how the IV30™, which was already trading above the historical vols, is popping with the underlying.

Possible Trades to Analyze
1. Calendar spread the upside skew:
a. Buy the Mar/Apr 14 call spread for $0.30.
b. Buy the Mar/Apr 15 call spread for $0.25.
NB: This sells vol in an earnings month, so it's got some added risk.

2. Call spread in Mar:
a. An interesting spread could be the Mar 12/13 call spread for $0.60. This trade carries a healthy delta as it's already $1.13 ITM. This is more a bet that CLNE stays above $13 than a bet that it will rise higher.
b., c., d. The 13/14, 14/15, and 15/16 call spreads are also worth analyzing -- each has a different expectation tied to it. In general, when doing a call spread, the short strike is the price you want to bet the stock will go to.

3. As always:
This might just be one to skip.  The Mar vol should go up as we approach earnings -- perhaps another trade to analyze will appear if the skew diverges to the upside (or downside) between the front two months.

This is trade analysis, not a recommendation.

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Ultra DJ Crude Oil (UCO) - Vol Pops, Crude Pops on Middle East Unrest

UCO is trading $11.76, up 8.7% with IV30™ up 11.9%. The LIVEVOL® Pro Summary is below.



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I posted a trade on this ETF for TheStreet.com's Options Profit, so I can't really discuss trades, but this is still one of the more interesting issues trading today.

The investment (UCO) seeks to provide daily investment results (before fees and expenses) that correspond to twice the daily performance of the Dow Jones/UBS Crude Oil Sub-Index.

A WJS.com article authored by Dan Strumpf sums up the action:

“The North African nation, a member of the Organization of Petroleum Exporting Countries, holds the largest reserves in Africa and accounts for about 1.7% of world crude output. The unrest in Libya has caused about 50,000 barrels a day of oil output to be shut down, an official at the International Energy Agency said Monday.

Light, sweet crude for March delivery soared $4.87, or 5.7%, to $91.07 a barrel from Friday's settlement on the New York Mercantile Exchange, after rising to as high as $94.49 a barrel in intraday trading. The contract expires at the end of trading Tuesday. The more heavily traded April contract rose $4.86, or 5.4%, to $94.57 a barrel.”
Source: DOW JONES NEWSWIRES

The ETF has traded nearly 17,000 contracts on total daily average option volume of just 4,345. Calls have traded on a 4.6:1 ratio with puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. With the vol popping it feels like mostly purchases. The Mar vol is up 5.5 points (12.1%) and Apr vol is up 1.8 points (3.5%).



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



The skew is bid to the upside in Feb. One oddity, it looks like the ATM vol is cheaper in Mar than April.

Finally, the Charts Tab (6 months) is 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 index has puttered around a bit -- then popped up today. The IV30™ is still lower than higher... I mean to say, the vol hasn't (yet) ripped through the long-term historical volatility trend. In English, if there's more "scary" news from the OPEC nations in Africa and the Middle East, vol can go higher.

This is trade analysis, not a recommendation.

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Genworth Financial (GNW) - Vol Rise and Upside Skew

GNW is trading $14.14, up 2.8% with IV30™ up 19.1%. The LIVEVOL® Pro Summary is below.



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Genworth Financial, Inc. (Genworth) is a financial security company dedicated to providing insurance, wealth management, investment and financial solutions to more than 15 million customers, with a presence in more than 25 countries.

I found this stock using a custom scan I built searching for names where IV30™ is up at least 10% today. The scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.



GNW is also active -- nearly 30,000 contracts have traded against a daily average of 8,338. Calls have traded on more than a 10:1 ratio to puts. The action is in the Mar 14 and 15 calls where nearly 16,000 contracts have traded in total. With vol up and the skew bending, I feel like there is a good portion of buying interest in these calls. A snippet of the Stats Tab is included below.



The GNW 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).



IV30™: 42.04
HV20™: 42.71
HV180™: 46.88

We can see the IV30™ is popping but is still below the HV180™ (long-term realized) and barely below the HV20™ (short-term realized). We can also note that the stock has moved up of late as well.

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



The skew looks pretty normal, though the upside does bend up a bit in Mar. Finally, let's look to the Options Tab.



Possible Trades to Analyze
1. Trade the Mar upside skew:
Buy the Mar 14/15 call spread for $0.38. This yields a 1.6:1 MaxGain:MaxLoss ratio with $0.14 in parity and sells slightly higher vol than it purchases in a call spread.

2. Calendar spread the upside skew:
A vol difference has opened up between the Mar and Jun upside.
a. Buy the Mar/Jun 15 call spread (~ 5 vol point difference)
b. Buy the Mar/Jun 16 call spread (~ 7.25 vol point difference)

3. Skip it:
This could just be one to keep an eye on. Maybe add it to your watchlist and put an alert in your LVP for IV30™ hitting 44 (or whatever). If the vol keeps popping, the skew or the calendar skew could become more interesting.

This is trade analysis, not a recommendation.

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MetroPCS (PCS) - Earnings Bet

PCS is trading $13.36, up 1.8% with IV30™ up 13.7%. The LIVEVOL® Pro Summary is below.



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MetroPCS Communications, Inc. (MetroPCS) is a wireless telecommunications provider. The company has earnings due out on 2-24-2011. Although there has been some order flow similar to the WTW interest I noted on 2-14-2011 and then again yesterday, Weight Watchers (WTW) - Insider Trading?, I wouldn't start piling on the speculative bet. WTW was an anomaly, it's likely not replicable. Ok, you've been warned...

PCS has traded over 8,000 contracts on total daily average option volume of just 897. Calls have traded on a 34:1 ratio to puts. The Mar 14 calls have traded over 6,600x. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls in Mar have a large OI.



I got color on the 1200 lot that traded in the Mar calls today and it seems that at least that trade was a customer buying. Using the Level II pop-out from LVP, we can see when the Mar 14 calls opened prior to today. That image is included below.



We can see the OI jumped on 1-27-2011. I've included the Time & Sales (below) from that day for the Mar 14 calls -- looking for all trades >= 100 lot.



So, the opening orders were purchases and I think the orders today are also long (I'm not sure, though). If this is the case, we have substantial opening long calls ahead of earnings in PCS. The final word will be Monday when we can see the new OI.

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



The upside calls have gone super bid (bending up) so the circumstantial evidence that at least some are purchases is piling up. Note that the 15 calls have higher vol than the 14 calls -- and this makes an interesting trade to analyze.

Finally, the Charts Tab (6 months) is 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 vol has exploded of late and that trend is continuing today.

Possible Trades to Analyze
1. Copy order flow and scalp skew in a call spread:
Buy the Mar 14/15 call spread for $0.30. This yields greater than a 3:1 MaxGain:MaxLoss and sells higher vol than it purchases in a call spread.. tricky...

2. Look to May:
If you like #1, look at the May 14/15 call spread for $0.35. That's a tough price to get, but paying a nickel more for two more months may be worth investigating. For $0.40, though, maybe Mar is better.

3. As always:
Skipping the trade is reasonable -- maybe the calls today are closing and the OI will go down on Monday. Or, even if the OI does go up, maybe the order flow is Much Ado About Nothing.

This is trade analysis, not a recommendation.

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NutriSystem (NTRI) - Stock and Vol Move on Competitor Results

NTRI is trading $20.83, up 6.6% with IV30™ popping up 27.9%. The LIVEVOL® Pro Summary is below.



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Nutrisystem, Inc. is a provider of a weight management system based on a low-calorie, portion-controlled, prepared meal program. NTRI is up on the WTW news. You can read about that here:
Weight Watchers (WTW) - Insider Trading?

NTRI has traded over 11,500 contracts on total daily average option volume of just 847. Calls have traded on a 3:1 ratio to puts with the Mar 20 and 21 calls showing the most action. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. Note that the company has earnings in the Mar options cycle. That embedded vol event could cause a big move given what happened with WTW (good or bad news).



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



We can see the Mar vol is well above the Jun vol. It's interesting to note that Jun has two earnings cycles (likely). Or said differently, Jun may have an earnings cycle that Mar does not have.

Finally, the Charts Tab (6 months) is 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 stock has popped today. It also moved up ~ 10% on the last earnings report.  More interestingly, check out the IV30™. It's been elevated for a while relative to the HV20™ and HV180™. Given that WTW moved 40% on earnings today, a naked vol sale... well, it's probably not a great idea.

Possible Trades to Analyze
1. Buy two earnings cycles vol for less than one:
Calendar spread something in Mar to Jun (owning Jun). The ATM vol difference is ~13 points, or in English, Jun vol is about 13 points less than Mar. One caveat here -- this might be one to do with OTM options -- it doesn't do much good to own the back month (and therefore the vega) if the stock is going to move huge away from the spread strikes.

2. Bet on some good news on earnings:
Just sort of a straight down the middle, plain vanilla (I can't think of anymore cliches) call spread to own deltas for cheap.
Buy the Mar 23/24 call spread for $0.25 or less. I'd be careful to pay anymore for this thing -- it's pretty far OTM.

3. Buy expensive vol:
Yeah, I said it. With WTW moving 40% on earnings and NTRI moving $1.30 in sympathy, the Mar 21 straddle for $2.80 actually doesn't feel that expensive. A little more tricky -- buy the Jun 21 straddle for $4.45. Same argument as above, but own two earnings dates (maybe -- Jun isn't a sure thing).

This is trade analysis, not a recommendation.

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Weight Watchers (WTW) - Insider Trading?

On 2-14-2011 I wrote:
Weight Watchers (WTW) - Earnings Bet Is On

I wrote:
-----
WTW will be announcing earnings 2-17-2011 BMO. I saw a large bet on the upside and felt it was worth a note.

The company has traded 6,635 contracts on total daily average option volume of just 371. All but 1 (one) contract has been calls. The action is in the Feb 45 calls where nearly 5,500 have traded (substantially purchases). The Stats Tab and Day's biggest trades snapshots are included (below).
-----



Just to be clear -- the last time that many options traded in WTW was June of 2009. So, yeah, it's a big bet.

And today, after earnings...



The Feb 45 calls, bought for ~$0.90 and about 6,000x yield a $7 million gain in three days.

I'm not sayin'... I'm just sayin'...

This is trade analysis, not a recommendation.

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Electronic Arts (ERTS) - Vol Jump and Term Structure Trading Opportunity

ERTS is trading $19.50, up 5.2% with IV30™ up 26.8%. The LIVEVOL® Pro Summary is below.



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ERTS has some very interesting volatility term structure -- this was a fun one to write.

I found this stock using a custom scan I built searching for names where IV30™ is up at least 10% today. The scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.



The ERTS 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).



IV30™: 42.11
HV20™: 57.29
HV180™: 34.81

We can see the IV30™ rose into earnings (as expected) then fell as the stock popped on the news. The stock then sort of stood still for a while and has decided to pop again on what I believe was some color from management on new products and forecasts. Today, the IV30™ has risen above the HV180™ (long-term realized). The HV20™ (short-term realized) is artificially high because of that big move a few days ago on the earnings release.

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



We can see the front month is super elevated to the back, but we can also see that the second month is substantially elevated to the third. Since it's hard to really see the second and third month vol difference with the front month in there (messing up the scale), I've included the skew tab with just Mar (2nd month) and Jun (third month), below.



It's easier to see the Mar/Jun vol difference now.  This is important because Jun has an earnings cycle (May) while Mar does not. Hmmm... Finally, let's look to the Options Tab.



Possible Trades to Analyze
1. Calendar spread Feb and Mar:
a. Upside Spread:
Buy the Feb/Mar 20 call spread for $0.53 (sell ~68 vol and purchase ~43 vol). This is a bet that ERTS sticks around $20 on expo.
b. Downside Spread:
Buy the Feb/Mar 19 put spread for $0.49 (sell ~67 vol and purchase ~41 vol). This is a bet that ERTS sticks around $19 on expo.

With both of these trades, on expo an extension could be to sell the next strike OTM in Mar to leg into a cheap call (or put) spread.

2. Calendar Spread Mar and Jun:
This is tricky because an earnings cycle will be in the Jun options but not the Mar options. Given how much ERTS moved last cycle, that seems like a pretty neat bet.
a. Buy the Mar/Jun 21 call spread for $0.54 (~8 point vol scalp) and own earnings vol for less than non-earnings vol.
b. Buy the Mar/Jun 18 put spread for $0.61 (~4 point vol scalp) and own earnings vol for less than non-earnings vol.

3. Alternatives:
Any combination of same strike and diagonal strike spreads seem reasonable in order to own back month vol for less than the front -- in particular owning earnings.

Something more fancy could be to open a Feb/Jun calendar. If that works out over the next 2.5 days, then spread Jun with Mar options. This yields two sales higher than the Jun purchase while owning earnings in a stock that has a history of moving on that news.

This is trade analysis, not a recommendation.

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