Friday, April 9, 2010

Nasdaq Biotech (IBB) - Multi-leg Bet with a Finger Print

IBB (iShares Nasdaq Biotechnology) is trading 91.83. The LIVEVOL™ Pro Summary is below.

The company has traded 10,500 options on one bet on total daily average option volume of just 1,578. All but 31 contracts today are from the single bet - sell calls to fund a put spread in May. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the trade today is almost entirely opening (compare trade size to OI).

The bet is this:
(1) Sell May 3500 95 calls @ ~0.62
(2) Buy 35000 May 90/85 put spreads for ~$1.00
Net -> pay $0.38 for the put spread but risk naked long side risk above $95.

The Charts Tab (6 months) is included (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

Note on the bottom - I have highlighted two unusually high option volume days in the recent past - specifically Oct 19th and Nov 9th. The largest trades for those days are included (click either to enlarge).

In Oct, a similar spread but to the other side was traded:
(1) Sell 5,000 Jan '10 70 puts @ $0.70 to fund...
(2) Buy 5,000 Jan '10 85/90 calls spreads for $1.05
This pays $0.35 for the call spread but risked naked short side risk below $70.
Result: At Jan expo the spread ended up losing the $0.35. I believe the 85 calls were closed out a few days prior to expo @ $0.30 for basically a push.

In Nov the bet was quite different:
Sell 2750 of the Jan '10 70/85 strangle @ $1.33 (I only show the first 2,250 in the snap).
The bet makes money if the stock stays above $68.67 or below $86.33. This trade was a net winner for max gain - i.e. all $1.33 in premium was collected.

So, it seems like the big better(s) in here tend to be decent recently - a break even and a a big winner (~$365,000).

This is trade analysis, not a recommendation.

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