Friday, September 24, 2010

Transocean (RIG) - Buying Depressed 60-day Vol

RIG is trading $59.98, up 0.9% with IV30™ down 2.7%. The LIVEVOL™ Pro Summary is below.

I found this company using a custom real-time scan on Livevol Pro™ searching for low vol 60 days out.

Custom Scan Details
Stock Price >= $10
IV60™ >= 1
Industry != Bio-tech
Average Option Volume >= 1000
IV60™ - HV60™ <= -8 >= -40

Let's take a look at the Charts Tab (click to enlarge). The vol chart only: (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see IV60™ is 39, while HV60™ and HV180™ are 53. In English, the 60-day implied vol is cheaper than the stock as moved over the last 60 trading days and the last 180 trading days.

The last earnings cycle for RIG was 8-4-2010. The next is 11-3-2010. That means the Nov options not only have low vol, but they have an embedded volatility event (earnings). Let's look to the Options Tab (click to enlarge).

Possible Trades to Analyze
1) Buying the Nov vol naked - Purchase the Nov 60 straddlefor $7.20 or 38 vol is one approach, though risky.

2) Buy the Nov ATM straddle but sell the Nov 52.5/70 strangle @ $1.75 for a total debit of $5.45. That sells 44 vol in the OTM puts and 34 vol in the OTM calls.

3) A little more tricky is to sell the Oct 52.5 puts to reduce the debit by $0.25. Then, assuming the stock isn't below $52.5, you could do trade #2.

4) Finally, risky but more interesting could be to do #3, but sell 2 of the Oct puts and of the Nov puts after. Or selling the Nov 50 put with the Nov 52.5.

This is trade analysis, not a recommendation.

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