Thursday, April 22, 2010

Beazer Homes (BZH) - Long Position Building into Earnings with Vol

BZH is trading 6.23 with IV30™ up 15.4%. The LIVEVOL™ Pro Summary is below.

The company has traded over 14,500 options today on total daily average option volume of just 1,286. Calls are trading on a 3:1 ratio relative to puts. The largest trade was a sale of the Nov 5/7.5 risk reversal (buy calls/sell puts) @ $0.07. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates a few things:
(1) The risk reversal was mostly opening for both the calls (long) and the puts (short). We see this b/c the open interest is significantly smaller than the trade volume.
(2) The Jun 5 and Jun 7.5 calls are less than OI - need to check if they're opening or closing
(3) The May vol is up 12.0 points while the back months are more muted.

The May 5 and 7.5 calls are predominantly purchases. The OI is long - so these are double downs (I checked using the level 2 pop-up and Time & Sales). These call purchases together with the risk reversal are very bullish if not done with stock. Having said that - I dunno if that's the case. Stock has traded over 2x normal volume already. Either way, people are getting long the juice - and vol is spiking with that order flow.

The Skew Tab snap is pretty interesting - you can see the upside skew super bent up for the two front months.

You might see either the Nov 7.5 calls come up, or the other months come down (or a mixture of both). The divergence could converge. Keep in mind, earnings are in this May cycle.

This is trade analysis, not a recommendation.

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