Wednesday, December 29, 2010

Sears (SHLD) - Vol and Stock Pop on Movie News

SHLD is trading $74.18, up 5.9% with IV30™ up 18.7%. The LIVEVOL™ Pro Summary is below.

For you market makers out there, you'll know what I mean when I say, I can't believe I'm writing about SHLD... But this is very interesting... No really, it is...

First the news:
The owner of Sears and Kmart launched an online streaming video service that lets customers download new movies.
Source: AP

Right, I mean, how big of a deal can one sentence be?... Hello!? Sears is going into movie downloads? Apple, Amazon, Netflix (they're actually more about streaming) and... Sears?... Huh?

Since Sears has no expertise (or experience) at all in this field, they've partnered with Sonic Solutions.

So, the stock is up, vol is up, and I'm confused... The third one happens fairly often. Let's look to the Options Tab.

The ATM straddle is priced at 48 vol (ish) or ~$7.30 fair value. Yesterday, the ATM straddle (which was the 70 strike) was priced at $5.34 or 37 vol. I found those numbers by clicking on the strike price (70) on the Options Tab, and holding the mouse button down on the pop up. That image is included below.

Let's look to the Skew Tab to get a read on month to month vols and intra-month vol shape.

So, Jan vol is elevated relative to the other months, as expected. The upside in Jan is bent up, the back months not as much. The real problem is that Feb doesn't have enough strike, so you guys making a market in this, please ask for more strikes so we can actually trade this thing.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see how the HV20™ (short-term realized stock movement) was asleep, that will change as of tomorrow. The IV30™ has now spiked passed the HV180™ (long-term realized stock movement).

Possible Trades to Analyze
These are all pretty risky, so ya, know, tread lightly...

1. Sell this vol:
Sell the Jan 70/80 strangle @ $3.30.
Cover up with the Jan 67.5/85 strangle for $2.00.
Collect $1.30, upside is much riskier than downside (i.e. MaxLoss is greater). For what it's worth, I don't really like this trade.

2. Sell the downside:
The stock hasn't been moving (see HV20™ comment above), and now the move is up.
Sell the Jan 67.5/70 1x2 put spread @ $0.35. This yields a nice little credit if "nothing happens" or the stock goes up. If the stock goes down, there's a $2.50 put spread for profit below $70, but then naked downside below $67.5. I kinda like this one.

3. Risk lovers:
Sell the Jan 70/80 strangle naked @ $3.30

4. Would like to look at Jan/Feb plays but no strikes yet in Feb.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment