Tuesday, March 20, 2012

SPDR S&P Bank ETF (KBE) - Banking ETF Shows Large OTM Call Buyers.... For Second Consecutive Day

KBE is trading $24.35, down small with IV30™ up 15.4%. The LIVEVOL® Pro Summary is below.


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The SPDR S&P Bank ETF (the Fund), formerly SPDR KBW Bank ETF, seeks to closely match the returns and characteristics of the S&P Banks Select Industry Index.

This is an order flow note -- OTM call buying for size. The ETF has traded over 31,000 contracts on total daily average option volume of just 1,810. Calls have traded on a 1485:1 ratio to puts.  At least 30,000 of those contracts are purchases in a customer account -- opening May 26 calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls have a massive existing OI of over 70,000.

Here's where it gets interesting. Yesterday that OI was zero. 75,000 of those calls traded and of those, 70,212 netted long opening purchases. The closing options montage and days biggest trades from yesterday are included below.

And how do I know the trades today are purchases in a custy account? Ah, the ever fleeting ISE Sentiment -- the number that represents opening calls (or puts) in customer accounts for purchases only. Check out the Stats Tab above -- the ISE Sentiment reads a green 30,000 -- that's 30,000 opening long calls from a customer on ISE.

Stock has traded heavily today, pointing to potential hedges, but the calls did not go up with stock yesterday to the floor (at least the stuff that hit NYSE ARCA).

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

I've circled the May 26 calls. Oddly, the upside skew across the front expiries hasn't really reacted that much, though there is a slight upside bend to those May 26 calls. So the skew is essentially unaffected, right? Well, not quite...

Let's turn to the same Skew Tab, yesterday.

Note that when comparing yesterday to today, the ATM vol in May was below Apr, and the May OTM calls were also below Apr.  Pretty cool...

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

The recent price run has been impressive. On 3-6-2012 (exactly two weeks ago), the underlying closed at $21.56. That's a gain of ~13% as of this writing in a "slow moving" (23% HV20™) ETF. On the vol side, we can see a gradually declining implied. In fact, the 23.77% number as of this writing puts it in the 13th percentile (annual). The 52 wk range in IV30™ is [17.16%, 65.93%]. So we've got dipping vol, rising underlying and size upside order flow back for a second day.

This is trade analysis, not a recommendation.

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