ANN, JCG - Different Earnings Trade Approaches Across Vols

ANN is trading 18.60 with IV30™ up 5%. JCG is trading 46.84. Note that they both have earnings coming this week. The LIVEVOL™ Pro Summaries are below.





ANN has traded ~7,000 options today on total daily average option volume of 2,135 with March call purchases the largest trades. JCG has traded ~8,500 options today on total daily average option volume of 2,259 with March put sales the largest trades. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

ANN

JCG

The Options Tab for ANN (click to enlarge) illustrates that the calls have traded less than OI. A little digging has convinced me that the Mar 15, 17.5 and 20 calls are the same side as the OI (they are opening). Also, the Mar 20 calls OI has jumped from ~200 to ~5000 in less than a week. You can also see that Mar vol is the highest of all months with earnings (a vol event).



The Options Tab for JCG (click to enlarge) illustrates that the Mar 45 put sales are at least mostly opening (volume > OI). Like ANN, you can also see that Mar vol is the highest of all months with earnings (a vol event).



The Skew Charts for each are provided (click to enlarge). Note the similar shapes and in particular how high the front month vol is relative to the back months.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month



Finally, the Charts Tab (6 months) for each is included (click to enlarge). The bottom portion is the vol - IV30™ (red line) vs. HV20™ (blue line). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.





Note the similarities - recent stock run ups with short term vol well above HV20™.

Conclusion:
The order flow is heavy in both relative to average and is getting long deltas. JCG trades are selling the high vol, ANN trades are getting long the vol. Based on the earnings vol levels and the bullish sentiment, I probably like JCG approach (selling the vol to get long) rather than ANN.

This is trade analysis, not a recommendation.

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Nuance (NUAN) - Calls Trading; Pattern Forming?

NUAN is trading 15.55 with IV30™ up 5 points (17%). The LIVEVOL™ Pro Summary is below.



The company has traded nearly 9,000 options in the first half an hour of trading on total daily average option volume of just 1,235. Further, just 74 puts have traded meaning a 120:1 call:put ratio. The largest trades have been the Mar 15 and Apr 17.5 calls. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the calls in March are opening (compare OI to volume). The Apr 17.5 calls require a little digging. You can also see that Mar vol is the highest of all months - even more than July which has earnings (a vol event).



Looking at the Level 2 pop-up for the Apr 17.5 calls we can see that the OI jumped on 2-3-2010. The Time & Sales snap for that day and those options is also included (click to enlarge).





The OI went up on purchases. Since the Apr 17.5 call trades today have pre-dominantly been purchases, it's safe to say that these are going to increase the OI (are opening).

Finally, the Charts Tab (6 months) is below (click to enlarge). The bottom portion is the vol - IV30™ (red) and HV20™ (blue). The yellow shaded area at the very bottom is the vol difference.



Note the up turn in the stock and vol which is "not normal" behavior but also not unheard of. You can also see that the IV30™ has consistently been higher than the HV20™ for several months. In other words, the vol has been a sale (in the past) yet is increasing even more today.

The last piece of information we can glean from the chart is how the stock (and vol) have moved following days like today (unusually high opening call volume - i.e. the volume bars at the bottom are tall and green). See the highlighted areas.

In Sep, it was a stock peak and HV20™ stayed still. In Dec stock peaked and HV20™ fell off a cliff. Today... I guess we'll see...

This is trade analysis, not a recommendation.

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Hertz (HTZ) - Sep Vol Seller

HTZ is trading 9.69. The LIVEVOL™
Pro Summary is below.



I found HTZ on the high option volume scan (high relative to average). Click the snapshot to enlarge.



The company has traded over 21,000 options today on total daily average option volume of just 491 - that's 4,300% of it's average. The largest trade was the selling 10,500 (21,000 contracts) of the Sep 10 straddle @ ~$2.70. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that the calls are at least mostly opening and ther puts are essentially all opening (compare OI to trade size). You can also see that Sep vol is the highest of all months - even more than June which has earnings (a vol event).





Finally, the Charts Tab (6 months; vol only section) is below (click to enlarge). The yellow shaded area at the very bottom is the IV90™ vs. the IV30™ vol difference.



You can see in the upper left that HV120™ (purple) has fallen hard and is now "flat lining." IV120™ (green line) is still above the HV120™ and still above the IV30™ (red line). I don't have a big opinion here, but I can see why this could be a sale.

The straddle makes money on Sep expo if 7.30 < HTZ < 12.70. Before expo, this makes money with a vol decrease, or a vol stays the same, stock stays the same and time passes (time decay). Max gain is with the stock on $10.00 at expo for a potential gain of $2.70*10,500*100 = $2,835,000.

This is trade analysis, not a recommendation.

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**UPDATE: MDVN Insider Trading Claims

* Update

CORRECTION: Zero Hedge published the article using Bloomberg snaps - this was not published by Bloomberg as I originally posted.

Orinal Post: Click Here.

This is a quick update to the blog yesterday which has gotten unbelievable attention.

Quick summary of yesterday with update to follow:
MDVN was trading 12.92 down $27.33 or 67.9% yesterday. IV30™ is down 175 points or 68%. The LIVEVOL™ Pro Summary is below.

3/3/2010

The news, obviously, wasn't good - the drug candidate for treating Alzheimer's disease proved largely ineffective. The full Reuters Key Development from Livevol Pro is included (click to enlarge).



The interest came from this:
Zero Hedge reported ~16,000 Apr 40 puts were purchased yesterday right before the close for $14 - now worth $27. That's $13 x 100 x 16000 = $20.8 million.

I claimed the Zero Hedge report was very good (and fast), but was actually missing some info.
4200 + 5200 + 4200 + 4200 = 17,850 right on market close for $23 million.

BUT THERE'S MORE: These were spreads - they also sold calls @ $17.60! While the put purchases are suspicious, the other side of the trade makes the whole spread obvious.

2535 + 3169 + 2535 + 1500 = 9739 calls for $17,140,640 profit.

That's over $40 million in probable insider trading. The Time & Sales Snap is beow (click to enlarge). Note the time - 4pm EST --> i.e. market close.



And the update:
The Zero Hedge article and this blog were challenged by some other services that these trades were not necessarily "cheaters." Two arguments have surfaced:

(1) Someone might have sold both calls and puts.
Response:
(a) No, the puts traded on the offer of an 0.80 wide market, they were purchases.
(b) There isn't a broker dealer on this planet that would allow anyone (market maker, pro, whatever) to sell 18,000 deep puts in $35 stock (see number 2 below for relative scale - i.e. how big is long 1.8 million shares?).

(2) It might have been a hedge for long stock
Response:
(a) Based on Yahoo! Finance:
Largest direct shareholder is David Hung - 1.4 million shares.
Largest institution is Barclays - 1.8 million shares (not mutual fund).
This was for 2.6 million shares. Even if someone had options that don't appear on insider rosters (which is possible), 2.6 million would be enormous relative to the numbers above. It's not gonna be just a guy. It's gonna be someone with unique knowledge about the company.
(b) A hedge is not a position flip. A hedge is usally < 50 delta; this is a position close, NOT a hedge. It's ~100 delta with calls and puts.

I hope ths turns out to be nothing - there is always a chance coincidence is just that, but I doubt it.

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** UPDATE: Medivation (MDVN) Collapses - Insider Trading a Bio-tech

* UPDATE

CORRECTION: Zero Hedge published the article using Bloomberg snaps - this was not published by Bloomberg as I originally posted.

Read the first MDVN blog by Clicking Here.

MDVN is trading 12.92 down $27.33 or 67.9%. IV30™ is down 175 points or 68%. The LIVEVOL™ Pro Summary is below.

3/3/2010

2/4/2010

The news, obviously, wasn't good - the drug candidate for treating Alzheimer's disease proved largely ineffective. The full Reuters Key Development from Livevol Pro is included (click to enlarge).



Zero Hedge reports ~16,000 Apr 40 puts were purchased yesterday right before the close for $14 - now worth $27. That's $13 x 100 x 16000 = $20.8 million. The Zero Hedge report of above was right on (and really fast) but actually is missing info.
4200 + 5200 + 4200 + 4200 = 17,850 right on market close for $23 million.

BUT THERE'S MORE: These were spreads - they also sold calls @ $17.60! While the put purchases are suspicious, the other side of the trade makes the whole spread obvious.

2535 + 3169 + 2535 + 1500 = 9739 calls for $17,140,640 profit.

That's over $40 million in probable insider trading. The Time & Sales Snap is beow (click to enlarge). Note the time - 4pm EST --> i.e. market close.




Let's re-visit some of the observations from the first blog in Feb (2/4):

-------------------------
(1) The Feb vol is still in the 70's even though the news is due for after Feb expo. The ATM straddle (Feb 35) is still priced: 3.55 x 4.15. In other words, fair value is ~ $4 on a $35 stock, or 11.5% for two weeks.
-- New Comment: That straddle was a sale; on expo the stock closed 37.62.

(2)The Jun 35 ATM straddle is worth about $25 (ish). A purchase would require the stock to move above $60 or below $10 - now that's some juice. 25/35 = 71% implied stock move by end of June.
-- New Comment: That straddle was also sale; the puts are worth ~$22, the calls are worth ~zero.

(3) The March ATM straddle is ~$14.50 fair value. A purchase of March and sale of Feb costs ~$10.50. If Feb rolls off as close to worthless (i.e. stock trades $35 at expo) you could own a $10.50 straddle that has fair value of $25 in June with news in March. I'm pretty sure more news is coming after March just looking at these prices. I leave it to the reader for more complete research.
-- New Comment: Selling Feb to purchase March would have been an ~ $18 winner (or $1800 for one single straddle).

(4) The March 45 calls have fair value $4.60. The March 25 puts have fair value $2.55. Both are ~10 out of the money.

(5) The March 65 calls are worth $2 - whoa! Enough said. You could buy 1 March 50 call for ~3.60 and sell 2 Mar 65 calls @ ~2 and receive 0.40. You make money unless the stock goes above 80! That doesn't mean it's a good trade, it means the option markets are pricing that as a legitmate possibility. That's ~1500% annual return for $35 stock going to $80 in a month.
-- New Comment: Another winner - but not as good a trade as the others. If the news was opposite (stock up $27 --> $73) the sale was still good.

-------------------------

Clearly buying the March ATM straddle was a winner - and even more so if you could have funded it with what ended up an expensive Feb straddle. Bio-techs are extraordinarily difficult to trade and feel sort like a coin flip really. I get the feeling someone always knows more than I do (i.e. biology, medicine experts).

The basic rule is buy the ATM straddles in the month of news and sell the wings. Having said that - I wouldn't have wanted to sell the 20 puts @ .20 (or whatever) since the're worth $7 now.

The Charts Tab is included (click to enlarge). The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference.



Finally the Skew Tab is included (click to enlarge) for both days (2/4) and today.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month





The shapes are fairly similar - what's easily lost are the absolute vol levels. Looks like ~60 point vol drop for the second months.

This is trade analysis, not a recommendation.

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** UPDATE: AGU, CF, TRA - It Takes 3 to Tango? Takeover Commotion & Trades

** UPDATE: As of 3-10-2010 TRA has accepted the CF deal; Yara has 5 days to respond.

You can read the original post: CLICK HERE.

The absurdity continues! TRA is trading up 12.8% to 46.49. CF is trading down 3.8% to 103.45. AGU is trading up 2.8% to 67.66. The LIVEVOL™ Pro Summaries are below.







The news is this:
Terra Industries shareholders will receive $37.15 per share in cash as well as 0.0953 of a CF Industries Holdings(CF) share. The value of the deal is about $4.74 billion.

-- And --

Agrium (AGU) is offering one share of Agrium common stock and $45.00 in cash for each share of CF Industries common stock. The deal is valued at about $4.52 billion

For those of you unfamiliar with these three companies I have include snippets of the prior post below (you can't make this stuff up).

Here's a quick summary of the last year:

As we sit today, TRA is getting bought out for $47 ($37.15 + 0.0953*103.45).
AGUs bid for CF bid went from $72 to now over $110.

(1) 1-16-2009: CF bids for TRA $2.1 billion
(2) 2-4-2009: CF goes hostile over TRA
(3) 2-25-2009: AGU bids $72 per share for CF
(3a) CF rejects AGU
(4) 5-11-2009: AGU ups bid to $82.50 per share for CF
(5) 5-18-2009: CF rejects AGU (again)
(6) 11-05-2009: AGU ups-bid (again) to $101.90 per share for CF
(7) 11-19-2009: CF rejects AGU (again)
(8) 12-07-2009: CF re-ups (again) for TRA (8th time) (more than double prior bid)
(9) 1-14-201: CF walks away from TRA
(10) 2-16-2010: TRA gets bid $4.52 billion from Yara
(11) 3-2-2010: TRA gets bid $4.74 billion from CF


In terms of trades, I'll just say exactly what I said last time:
Is there a way to trade this? Just look at the headlines.

This is trade analysis, not a recommendation.

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Forest Labs (FRX) - Big April Option Action

FRX is trading 30.32. The LIVEVOL™ Pro Summary is below.



The company traded over 20,000 options yesterday on total daily average option volume of just 1,408. Further, 18,000 of that was in April. The largest trades were massive opening call purchases Apr 30 6500x and 32.5 6700x. The Apr 27.5 and 30 puts also traded ~2,400 each (mostly purchases). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab snap is included (click to enlarge). You can see all of these trades (all four lines) were opening based on the tiny open interest (OI). They were predominantly purchases.



Also note the Apr vol closed at 31. That's six points above the front month and actually a point higher than May which has earnings (a vol event). The Skew Tab is included (click to enlarge) - the front month is excluded.

Skew Legend:
Yellow - Second month
Green - Third month
Light Blue - Fourth month
Dark Blue - Fifth month
Purple - Sixth month



The second month vol is unusually high (again, third month has earnings) - other than that, there doesn't seem to be anything unusual yet in the shapes. There is a significant downside bend which is "normal." To read why skew exists you can CLICK HERE.

The recent news in FRX is included (click to enlarge). Essentially they were denied FDA approval on expanding the use of one of their drugs.



The company has some other interesting news as well (this is from Smart Money):

In about two years, the company is expected to lose $2.3 billion of its $4.2 billion in yearly sales when its patent for Lexapro, a pill for depression, expires. The company expects six drug approvals between now and the end of 2012. Forest’s strong financial results in its most recent quarter are a reminder of how profitable the company remains for now. It generates yearly cash flow equal to nearly 12% of its stock market value, and it sits on a cash stockpile equal to more than 35% of its stock market value.

Finally the Charts Tab snap is included (click to enlarge). You can see a short term run up in stock. The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference. You can also see that IV30™ is pushing passed HV20™. Finally note the level of option volume yesterday relative to other days (the bottom bar chart).



This is trade analysis, not a recommendation.

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OSI Pharma (OSIP) - Takeover Trading Above Hostile Bid

OSIP is trading 56.44 up 52.5% with IV30™ down 11% on takeover news. Note the takeover bid is for just $52. The LIVEVOL™ Pro Summary is below.



The news is an unsolicted bid (hostile) from Astellas Pharma for $52 in cash. Astella says that no financing is required and they will begin their tender offer to shareholders on 3/2 (tomorrow). The Corporate Action snap is included (click to enlarge).



So the question - why is OSIP trading so far over the bid price? Here's some back story to help with that:

(1) Astellas said that it first approached OSI about a possible takeover in January 2009 but that OSI "has refused to engage in a meaningful discussion." (reference: click here).
(2) OSIP stock traded as high as $53 in late 2008. The Charts Tab snapshot is included (click to enlarge).



Note that the bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference.

Both of these factors allow for the possibility of a rejected tender and a subsequent higher bid. Of course they also allow for the deal to fall apart.

The way we look at things on the floor is almost always through the ATM straddles. The Options Tab snap is included (click to enlarge).



A few things to note (remember, the bid is $52).
(1) The March 55 straddle is 2.75 x 3.45 with ~$3 fair value. Hypothetically a sale of that straddle at fair value would lead to break even if the stock closes at $52 or $58. Either way, the implication is a closing stock price above $52.

(2) Apr and Jul 55 straddles are ~$4.00 and $6.00 fair value. Someone could sell the Jul straddle, collect $6 - be safe if the stock goes all the way to $49 or up to $61. I'm not saying this is a good sale - I'm saying it's just fair value at this point - which is pretty remarkable considering this is an all cash, no financing needed bid that's a ~50% premium to the close on Friday.

(3) The downside puts in Apr are still trading at reasonably high vol - the Apr 45 puts are 43 vol on a dime wide market in a stock that traded ATM vol of ~ 30 prior to the news. The possibility of a higher bid also means the possibility of the buyer walking away in frustration.

(4) 60 level calls are bid everywhere; in March they are 0.20 x 0.45. That means the probability measure (outcomes and probabilities) allow for bids above 60 with a reasonably high probability (i.e. non trivial).

This is trade analysis, not a recommendation.

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** UPDATE #2: Millipore (MIL) - Takeover Bid Leaked, Stock Jumps $30 then Drops - Options Trade

** UPDATE

You can read the original post BY CLICKING HERE.
You can read the first update post BY CLICKING HERE.

MIL is trading 104.72 up almost $10.31 with vol down 80%. The LIVEVOL™ Pro Summary is below.



The news is a takeover bid for $107. The corporate action is included below:



The surprise is not the takeover or the price - but the bidder. The news as broken by Bloomberg last week that TMO was going to make a bid. MIL went from $72 to $102 and finally settled to $87. When there was no denial or confirmation but the company hired Goldman as its financial advisor, the stock crept up to $94 but the vol remained high. Today the news is that MRK is the bidder for the same expected price. There may be a possibility for a counter bid but the price is not reflecting that possibility.

Usually if a bidding war ensues (or is expected to ensue) the underlying will trade higher than the bid price. In this case we don't see that yet.

The snapshot of the first two months Options Tab is included (click to enlarge). I have highlighted the Mar and Apr 105 and 110 calls. You can see the Mar 110s are no bid and the Apr 110s are only 0.10 bid. The market (the stock, the options prices and the vols) are pointing to no second bid. We'll see...



This is trade analysis, not a recommendation.

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