Wednesday, December 1, 2010

Patriot Coal (PCX) - Low Vol May Yield Trade

PCX is trading $16.81, up 3.9% with IV30™ down 5.4%. The LIVEVOL™ Pro Summary is below.

PCX is a producer of coal in the eastern United States, with operations and coal reserves in Appalachia and the Illinois Basin. It is also a producer of metallurgical coal.

I found this stock using a real-time custom scan. This one hunts for low vols.

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 PCX 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). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see:
IV30™: ~56.67
HV20™: 66.26
HV180™: 65.55

So, IV30™ is depressed relative to the short term and long term realized movement of the stock.

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

Possible Trades to Analyze
1. Buy the Dec 17 straddle for $1.59.

2. Buy the Dec 16/17 strangle for $1.16.

3. Ok, more creative than naked long options:
Buy the Dec 16/17 strangle for $1.16
Sell the Dec 14/19 strangle @ $0.25

4. Risk lovers:
#3 but sell the Jan 12.5 puts @ $0.20... Or do those twice... Oo...

PCX 52 wk range is [$9.76, $24.25], which is pretty freakin' wide.

This is trade analysis, not a recommendation.

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