Wednesday, December 8, 2010

Sara Lee (SLE) - Vol Rips; Calendar and Skew Scalp On the Board

SLE is trading $15.73, up small but with IV30™ ripping up 32.2%. The LIVEVOL™ Pro Summary is below.

I found this stock using a custom scan that searches for names where IV30™ is up at least 10% today. It also showed up on my calendar spread scan. The vol increase scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

The only interesting news I found in SLE is about a completed sale of its global Body Care and European Detergents businesses to Unilever for Euro 1.21 billion. (Source: PR Newswire). I am probably missing something here, so do your homework, please.

The SLE 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).

IV30™: 35.10
HV20™: 21.94
IV180™: 21.91

We can see the IV30™ has exploded today as is now well above the HV180™ (long-term realized) and the HV20™ (short-term realized).

The Skew Tab snap (below) illustrates the vols by strike by month.

It's the 16 strike that has the vol diff. Let's look to the Options Tab below.

Possible Trades to Analyze
1. Spread the months:
Sell the Dec 16 call @ $0.30.
Buy the Jan 16 call for $0.65.
This pays $0.35, sells 40.3 vol and purchases 33.5 vol.

2. Spread the skew in Jan:
Buy the Jan 16 call for $0.65.
Sell the Jan 17.5 call @ $0.25.
This pays $0.40, buys 33.5 vol and sells 37 vol in a call spread.

3. For you risk lovers:
Buy the Jan 16 call for $0.65.
Sell the Dec 16 call @ $0.30.
Sell the Jan 17.5 call @ $0.25.
This nets a $0.10 debit, but is naked upside until Dec expires. It sells the elevated vol twice. Keep in mind, a vol pop does not automatically mean a sale. Vol rising means risk rising, so, ya know... Be careful...

For what it's worth (not a lot), I wouldn't be naked options until I knew what this vol pop was about. Also, paying $0.05 in the Dec 15 puts seems super cheap with vol exploding, no?...

This is trade analysis, not a recommendation.

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1 comment:

  1. flyonthewall is reporting "takeover rumors"