Tuesday, November 17, 2009

Dress Barn (DBRN) - Vol Seller

DBRN is trading up about 8% today with earnings AMC on Thursday. The Company Summary snap is below.

The company averages just under 900 option contracts a day but as of an hour and a half into trading, nearly 5,000 contracts have traded. The biggest trade was a Dec 20 Call seller 1,300 times (over 100% of average daily option volume). You can see the Company Tab snap below. In total, over 2,200 Dec 20 calls have traded. I see that this trade was a customer selling because the price was 1.85 with a 1.80 x 2.20 market (very likely a seller since the price is so near the bid). Click the snap below to enlarge to see all the details above.

The historical volatility (the actual realized movement of the stock) relative to the option implied volatility (the "estimate" of volatility moving forward) are vastly divergent. You can see the Charts Tab below with HV20 (historical 20 day vol) in white vs. IV30 TM (implied volatility of hypothetical 30 day option) in red.

Looks like a trade with double rational. (1) Selling what seems to be high vol (and earnings vol). (2) Selling calls against a rallying stock (new price target $21) which is purchasing another company. I like the trade and the reasoning as I have justified it in my mind. And no, that was not me on the tape...

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