Wednesday, December 29, 2010

Amedisys (AMED) - Depressed Vol... Or is it?

AMED is trading $33.91, up 4.5% with IV30™ down 2.1%. The LIVEVOL™ Pro Summary is below.

I found this stock using a real-time custom scan. This one hunts for low vols.  But, there's a little more to this one (see below).

Custom Scan Details
Stock Price >= $7
IV30™ - HV20™ <= -8 >= -40
HV180™ - IV30™ >=7
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >= 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

The AMED Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see:
IV30™: 41.26
HV20™: 52.65
HV180™: 62.31

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock. BUT, this is a touch misleading. We can see the stock gapped up on 12-21-2010 (Deutsche Bank upgrade) which has pushed HV20™ up from ~28 all the way to the low 50's.

We can also see gap moves in AMED stock on 6-30-2010, 7-12-2010, 8-10-2010 (earnings) and 12-21-2010. These big moves are reflected in the long-term historical (HV180™).

Finally, let's look to the Options Tab (below).

Check out Jan ATM vol - it's just 38 while Feb is ~45 and Mar ~46.

Possible Trades to Analyze
The real question here is whether or not AMED has downside risk for the next few weeks given the upgrade. If not, then vol is a sale and downside vol is a super sale. But, since this is a low vol scan result, this would be selling depressed vol. Tricky...

1. Sell the downside:
Sell the Jan 31 puts @ $0.40 (~42 vol).
This is naked short the downside.

2. Buy the Upside:
Buy the Jan 34/35 call spread for $0.45. Anything less than $0.50 gives a Maxgain:MaxLoss > 1:1.

3. Risk lovers:
Do #1 and #2; i.e. the Jan 31/34 risk reversal with a short 35 call. If this can be done for even, it seems like a reasonable bet.

4. Total Opposite:
Hey, this is cheap vol! Buy the downside in a stock that gaps often.
Buy the Jan 34 put for $1.42.

This is trade analysis, not a recommendation.

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