Wednesday, December 8, 2010

Harmony Gold (HMY) - Time Spread and Popping Stock

HMY is trading $12.14, up small with IV30™ down 0.5%. The LIVEVOL™ Pro Summary is below.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

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 back months that are cheaper than the front by at least 8 vol points. 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 selling elevated front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

We can see how the front month is elevated to the back, especially the Dec 12 and Jan 12.5 lines.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock moved up from $11.33 to $12.69 in between 11-30-2010 and 12-6-2010.

IV30™: 40.61
HV20™: 43.49
HV180™: 34.13

So the sort-term realized and implied vols are well above the long-term trend in the stock.

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

Potential Trades to Analyze
1. Calendar Spread:
Sell the Dec 12 straddle @ $0.70 (47 vol).
Buy the Jan 12.5 straddle for $1.45 (~41 vol).
Pay $0.75. Note that this trade carries a delta as the strikes are offset.

2. Put Calendar Spread:
Sell 1 Dec 12 put @ $0.25 (~45 vol).
Buy 1 Jan 12.5 put for $0.90 (~40 vol).
Pay $0.65. Note that this bet carries a delta because of the offset strikes.

3. For you risk lovers:
Do #1 and also sell the Jan 11 put @ $0.20 (~39 vol).
This yields a net $0.55 debit and evens out the deltas a bit while leaving the downside naked short until Dec expo.

This is trade analysis, not a recommendation.

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