Friday, December 17, 2010

optionsXpress (OXPS) - Earnings Vol Trade

OXPS is trading $20.22, up 1.1% with IV30™ up 2.6%. The LIVEVOL™ Pro Summary is below.

Ok, let's be honest, it's deader, than... well... dead... But this one is interesting in OXPS given that earnings are after the Jan cycle.

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 OXPS 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 Jan month is elevated to March. Note in particular the vol diff between the 17.5 lines.

Now we can turn to the Charts Tab - just the stock portion (below).

OXPS paid a big divi recently, the stock rose into that - kind of choppy prices.

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

We are projecting OXPS earnings to be released around 1-27-2011. The actual date right now isn't important, it's that it falls after the Jan options cycle.
WARNING: The effect of the large divi (which in fact has not been paid yet) is unknown. This is probably a "stay away" in my opinion.

Potential Trades to Analyze
1. The Jan/Mar 17.5 put spread costs ~$0.20. Interesting because not only does March have two more months the Jan, but it also has an earnings event (volatility event).

2. The Jan/Mar 20 put spread (or call spread) has a similar design. The put spread costs ~$0.35.

3. Waiting until Monday to see Feb options is a possibility as well. The spread will be even tighter between Jan/Feb.

This is trade analysis, not a recommendation.

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1 comment:

  1. It has nothing to do with the earning , OXPS had x-divided Dec 13 special divided of $4.50 stock is expected to drop that amount on the payment date of December 28, Some holders sell in the money calls with expectation for the drop. They don't realize that the calls will have $4.5 liability attached to them as it is a special divided! same applies to put sellers