Tuesday, May 11, 2010

Mindray Medical (MR) - Vol Sale After Earnings

MR is trading 32.49, down 7.2% with IV30™ down 14.3% on earnings. The LIVEVOL™ Pro Summary is below.

With earnings yesterday AMC, the company has traded over 6,600 options today on total daily average option volume of just 488. 4,200 of this volume has been in a Jun 30/35 strangle (sale). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that both the calls and the puts in the strangle are almost all opening (volume > trade size by a lot). Also, you can see the month by month vol drops after earnings.

The Skew Tab snap illustrates the vol that's getting sold relative to the other options (click to enlarge).

You can see that Jun (yellow) is elevated relative to Jul (green) and about the same as Oct (blue) which will have an earnings release (a vol event).

Finally, the Charts Tab (6 months) is below (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.

I've highlighted the $30-$35 range for the stock. The strangle sale gets max gain between these two values - it breaks even at $28.47 and $36.53 (assuming $0.88 sale in the puts and $0.65 in the calls).

If you look between the two "E" icons (i.e. the last two earnings), you can see the stock does tend to stay range bound. That was a 3 month window, this is just a one month strangle. The news is out, if the stock doesn't "drift" and no new surprises get announced, this trade makes some sense.

This is a good example of not selling earnings vol b/c the move can be huge - and waiting after earnings to sell, even though the vol is much lower. Traders actually do this fairly often.

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment