Thursday, September 8, 2011

Open Table (OPEN) - Stock Drops on GOOG News, Now What?

OPEN is trading $56.91, down 9.3% with IV30™ up 8.3%. The LIVEVOL® Pro Summary is below.


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OpenTable, Inc. (OpenTable) provides solution that forms an online network connecting reservation-taking restaurants and people who dine at those restaurants. Its solutions include its Electronic Reservation Book (ERB), for restaurant customers and, a restaurant reservation Website for diners.

The news driving the stock is best summed up in a quick news snippet:

NEW YORK (AP) -- Shares of restaurant booking and review website OpenTable Inc. sank more than 10 percent Thursday after search giant Google Inc. said it was buying restaurant reviewer Zagat.

Investors may be speculating that Google will now move into the restaurant reservation business and threaten OpenTable's lead in that market.
Source: AP

OPEN has traded over 23,000 contracts on total daily average option volume of just 5,427. While no specific line is trading the majority of the volume, and while calls and puts are about equally active, the general tenor is vol is up -- so option buying. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action today. We'll come back to this when we examine some potential trades to analyze.

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

We can see a normal shaped skew with the downside bid relative to the upside. A vol diff has opened up inbetween the front two months to that downside skew.

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 the stock fading for the last few months from as high as $120 (ish) to now less than half that value. On the vol side we can see the implied has just now popped over the short-term realized and has been trading well above the long-term historical for some time.

Possible Trades to Analyze
So the question here -- is this news going to keep the stock price depressed for a "prolonged" period of time (read: more than a week and a half) or is this just a one or two day "reaction?" I dunno -- here are some trades to analyze for various outcomes:

1. Sep/Oct downside calendar
The 45, 47.5 and 50 put spreads sell 36, 32 and 22 vol points higher than they purchase, respectively, and all likely win if the stock moves to the strike but not much lower.

2. Sep/Oct upside calendar
The vol diffs are much smaller to the upside, but for a bet that the stock recovers to a certain price by Sep expo, doing that strike call calendar is an interesting trade to examine.

3. Short Sep put spreads / Long Sep call spreads
Selling OTM put spreads in Sep (which is the equivalent of buying ITM call spreads of the same strikes) bet that the stock doesn't go much lower than it already has and collects a small premium with a capped MaxLoss.

4. Diagonal calendars
On the put side, selling the higher strike in Sep and buying the lower strike in Oct is an interesting way to play trade #1, with a smaller premium paid but a larger MaxLoss.

This is trade analysis, not a recommendation.

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