Thursday, December 23, 2010

Agilent (A) - Low Vol and Earnings Bets

A is trading $41.14, up small. The LIVEVOL™ Pro Summary is below.

So, there's not a whole lot goin' on today, obviously. This will probably be the only post. I tried lookin' for something worth writing about, and is Agilent pretty decent in terms of vol analytics.

Let's start with the Charts Tab (6 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Note a few things:
1. HV180™: 34.21
The long-term historical realized vol is pretty steady and slightly increasing.

2. HV20™: 23.22
The short-term historical realized vol has been well below the HV180™ for several months, but it increased as A stock has risen and more recently, decreased a bit.

3. IV30™: ~23
The short-term implied has steadily gone down since ~ mid Oct. The Jan ATM straddle is priced at ~23 vol.

4. A stock has gone from ~$27 in mid August to now over $41. More recently, the stock was ~$35.50 exactly one month ago.

Let's look to the Options Tab.

So the Jan 41 straddle is ~ $2.13 fair value and the Feb 41 straddle (with earnings) is ~ $3.55 fair value. For what it's worth, A popped about $2 two earnings cycles ago.

Possible Trades to Analyze
1. Get on the "long" bandwagon:
Buy the Jan 41 call for $1.15 (~23 vol).

2. Do #1, but add a little risk for some return:
Also sell the Jan 39 put @ $0.36 (~25 vol).

3. A little contrarian to the above. Maybe the vol is low for good reason, sell Jan and buy Feb earnings vol:
Sell the Jan 40/42 strangle @ $1.28.
Buy the Feb 41 straddle for $3.58.
Net debit is $2.30 to possibly own the earnings straddle into Feb.

4. For you risk lovers:
Do #3 but also sell the Feb 38/44 strangle @ $1.35.
This brings the net debit to $0.95. If all works out well in Jan (which it very well may not), the strategy owns the ATM earnings vol for a deep discount.

NB: Trades 2, 3 and 4 sell cheap downside. 2 and 4 are naked.

This is trade analysis, not a recommendation.

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