Wednesday, September 14, 2011

Gold Resource (GORO) - Elevated Vol in a Hard to Borrow

GORO is trading $21.43, with IV30™ down 1.3%. The LIVEVOL® Pro Summary is included below.


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Gold Resource Corporation is engaged in the exploration for and production of gold and silver in Mexico.

I found this stock using the real-time custom scan that searches for high vols.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 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 GORO 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 stock has been headed straight down since early Aug when it hit as high as $28.45. As of this writing it's trading $21.43 or down 25% in a little over a month. The HV20 hit as high as 73.26 in Aug with IV30™ at 74.60. Of late, the stock has moved with lower realized vol (HV20 and HV20 are below 50), but the IV30™ has remained elevated. It's that vol diff that peaked my interest. Specifically:

IV30™: 72.91
HV20: 46.60
HV180: 54.71
HV10: 34.94

Let's turn to the Skew Tab, below.

We can see the downside skew in all three months has a steep slope while the Dec ATM are priced higher than the other two months (quite possibly due to earnings).

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

Check out those Oct 15 puts priced at ~86 vol or ~$0.30. Keep in mind, the 52 wk range for GORO underlying is [$17.23, $31.10], so $15 is ya know... lower...

Possible Trades to Analyze
1. Note the ATM combo prices stock at ~ $20.50 in Oct -- so this thing is hard to borrow, thus the expensive puts. An interesting trade that caught my eye was an Dec/Oct 17.5/15 1x2 put spread. Of course, if the stock goes back to $5 (did I mention this was a $5 stock less than 2 years ago?) that 1x2 will feel pretty... umm... bad...

This is trade analysis, not a recommendation.

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