Monday, March 21, 2011

Energy XXI (EXXI) - Elevated Vol

EXXI is trading $31.67, up 2.0% with IV30™ down 6.2%. The LIVEVOL™ Pro Summary is below.


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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

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

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

The EXXI 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).


We can see:
IV30™: 49.05
HV20: 36.42
HV180: 40.31

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

Let's check out the skew.

Let's look to the Options Tab (below).

Possible Trades to Analyze
1. To analyze selling the vol:
Sell the Apr 31/32 strangle @ $2.60.
Buy the Apr 29/34 strangle for $1.30.
Collect $1.30 to risk $0.70 and bet on a small move in EXXI to Apr expo.

2. The opposite view is also worth examining; specifically if the vol is elevated, maybe the stock is going to move:
Buy the Apr 31/32 strangle for $2.80 and bet on a stock move (or vol near-term increase).

This is trade analysis, not a recommendation.

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