Trina Solar (TSL) - Expensive Gamma in the Front Month

TSL is trading $20.61, down 0.8% with IV30™ up 2.6% as of ~11am EST. The Livevol® Pro Summary is included below.



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Trina Solar Limited (Trina) is an integrated solar-power products manufacturer based in China with a global distribution network covering Europe, North America and Asia. It produces standard monocrystalline photovoltaic (PV) modules ranging from 165 watts (W), to 240 W in power output and multicrystalline PV modules ranging from 215 W to 240 W in power output.

I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis -- but this is one that could be a cool trade to examine for the next few days.

This is another one that came up in the custom scan finding some juicy front month options relative to the second, with just a few days to go to expiration. The scan details are included below.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

Normally I put a little note as to the reasoning of the scan, but this close to expo it’s really simple. I’m looking for a three day trade to sell gamma for a rich premium and cover with the back.

Let’s turn to the Skew Tab and examine the month-to-month (and line-by-line) vols.



As expected, we can see the front month is elevated to the back and there’s a parabolic shape to the Jun options.

Now we can turn to the Charts Tab (below) to see the vol level we’re purchasing (as this trade is long vega). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



The stock has been quite volatile of late pushing HV20 to nearly 64. HV180 (the long-term realized vol trend) is 51.67. With Jul vol at ~55, a calendar spread doesn’t buy cheap vol, but it doesn’t look really expensive either. In English, this feels like “fair-ish” vol to own for a few days.

Let’s look to the Options Tab for completeness.



Keep in mind, in examining a three day trade: This is a Chinese solar company – so any trade does carry a substantial risk of loss – even in the short-term.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 6-15-2011

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J.C. Penney (JCP) - Stock Pops on Apple Exec; Is Gamma a Purchase?

JCP is trading $35.35, up 17.4% with IV30™ up 6.7%. The LIVEVOL® Pro Summary is below.



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J. C. Penney Company, Inc. (JCPenney) is a holding company whose principal operating subsidiary is J. C. Penney Corporation, Inc. (JCP). The news that's pushing the stock today, is... well... interesting:

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J.C. Penney Co. is tapping Ron Johnson, head of Apple Inc.'s iconic retail stores, as its new president and next chief executive, a rare poaching that was set in motion by a pair of activist investors.

Mr. Johnson, 52 years old, will become CEO in November, succeeding long-time leader Myron "Mike" Ullman. Mr. Ullman, who has been CEO and chairman for six and a half years, will become executive chairman.

The changes were set in motion kick-started by a pair of activist investors who amassed 26% of Penney's stock last year. The investors – William Ackman of Pershing Square Capital Management and Steven Roth of Vornado Realty Trust – won spots on Penney's board and suggested bringing Mr. Johnson on as a director as well.
Source: WSJ.com, By ELIZABETH HOLMES And JOANN S. LUBLIN
---

The stock has popped. The company has traded nearly 190,000 contracts on total daily average option volume of just 11,196. Interestingly, calls have only traded on a 1.4:1 ratio to puts against an average of 1.7:1. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. The Jun 36, Jul 35 and Jul 36 calls are the most active on the call side. For the puts, it's the Jun 34, 35 and Jul 33 lines. Each of those options (calls and puts) have traded more than 5,000 contracts today on substantially smaller OI than trade volume. There's definitely some nice liquidity right now for anyone trying to get on a position.



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



We can see two phenomena pretty clearly:
1. The front month is elevated to the back. Given the news and the approaching expo, that feels about right.

2. The front month upside is bid as opposed to the second month where the skew bends down to the OTM calls. But, before we get too excited, those are really $0.05 or less options to the upside - nothing too crazy.

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).



Basically the stock has ripped today and vol has popped with it -- though not as much.

Possible Trades to Analyze
There a lot of ways to look at this -- let's just touch on a few.

1. Calendar spread
The front month vol is elevated to the back b/c of expo and b/c of the news. The ATM front month straddle is priced at ~$1.55. The second month is priced at ~ $3.40. So, you're looking at a about half the value of the back month for three days in the front. Then again, that's short gamma in a stock that's moved ~$5 today, alone.

2. Buy front month vol
Copy and paste the analysis: The front month ATM straddle costs ~$1.65 (giving up some edge). The stock moved $5 today alone.  That gamma might actually be cheap...

3. Sell the second month vol
Jul is priced at ~ 42 vol. HV20 is 30.85 (not including today) and HV180 is 32.95 (not including today). Hypothetically, that could be a vol sale. Then again, the stock just moved 17.4% in six hours.


This is trade analysis, not a recommendation.

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Full Disclosure: I am long options in Jun.
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Mercadolibre (MELI) - Calendar Spread, Elevated Vol and Stock Movement

MELI is trading $79.74, up 3.1% with IV30™ down 4.6% as of ~10:10am EST. The LIVEVOL® Pro Summary is below.



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MercadoLibre, Inc. hosts an online commerce platform in Latin America located at www.mercadolibre.com which is focused on enabling e-commerce and its related services.

I wrote about this one for TheStreet.com (OptionsProfits) so no specific trade analysis, here. The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Noting that we’re very close to expiration, let’s look to the Skew Tab (below).



We can see the month-to-month vol difference – again, this isn’t necessarily unusual given expo is four trading days away.

Now we can turn to the Charts Tab (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 IV30™ is slightly elevated to the historical measures – meaning that Jul vol is slightly elevated to the historical measures as Jun is essentially excluded from IV30™ on expiration week. We can also see the stock drop on 6-6-2011 – there were concerns over elections in Peru. On that same day Piper Jaffray sent out a note that MELI’s growth prospects in Latin America remain unchanged and called the dip a buying opportunity.

Let’s turn to the Options Tab.



The calendar spread kinda seems pricey sine it would mean owning vega in July, which is elevated per the chart above. The front month options are pretty juicy for those interested in a risky bet. Then again, the stock has moved more than $2.50 today alone -- so, ya know... Maybe not juicy enough?

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 6-14-2011

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Waste Management (WM) - Elevated Vol & Downside Vol Diff

WM is trading $36.49, down small with IV30™ up 0.5%. The LIVEVOL® Pro Summary is below.



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Waste Management, Inc. is a holding company and all operations are conducted by its subsidiaries. The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Let's look to the Skew Tab (below) to check out the line-by-line and month-to-month vols.



We can see the front month vol ATM shows a vol diff of ~6 points. Going down the skew, the Jun/Jul 34 skew difference opens to ~22 points. Nice...

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



IV30™ is suite elevated -- has risen of late as the stock has gone down.

IV30™: 26.55
HV20: 12.91
HV180: 11.32

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



Potential Trades to Analyze
A few ways to look at this.

1. Calendar spread the downside:
Jun/Jul calendar put spreads open up to over 20 vol point differences. For the negative delta bet taker, a diagonal accumulates an even greater vol difference while owning the downside.

2. Straight vol sale:
Given the elevated IV30™ to the historical measures, a vol sale of some sort can be examined.

3. The opposite:
It's contrarian, but... The Jul ATM straddle is priced at ~$2.40. Maybe that's too cheap?

This is trade analysis, not a recommendation.

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Harvest Natural Resources (HNR) - Oil Discovery and Vol

HNR is trading $12.82, up 22.2% with IV30™ up 5.5%. The LIVEVOL® Pro Summary is below.



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Harvest Natural Resources, Inc. (Harvest) is an international petroleum exploration and production company.

The company is moving on news of oil discovery Here's a quick snippet:
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The oil was discovered in the Dussafu Ruche Marin-1 well in a block in which Harvest is the operator and holds a 67 percent interest, the company said in a statement.
[...]

The company had estimated the well held 90 million barrels, Eric Hagen, an analyst with Lazard Capital Markets Ltd. in New York, said in a note to investors this morning. The find could add $10 to Harvest’s share price, he said.
Source: Bloomberg, by Bradley Olson
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As of right now the company has a market cap of ~$430 million. Today, the company has traded over 4,300 contracts on total daily average option volume of just 1,291. Calls have traded on a 15.3:1 ratio to puts on the news. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Jun 12.5 calls are most active in the front month, trading 1,884x on existing OI of 5,103. I actually think a good portion of those calls are sales (they look offered down).



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



We can see the front month has a positive slope (higher vol to the OTM calls), while the back is more normal (downward sloping). There's also a noticeable vol difference between the front two months -- or really, between the last week in Jun and the month of Jul. With the stock moving 22% today, it makes sense for that front month vol to be elevated.

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 pop today. On the vol side, we can see how IV30™ was elevated to HV20 and now the IV30™ has popped again. We'll see the HV20 movement tomorrow as all HV is calculated close-to-close.

Possible Trades to Analyze
This is an interesting one so close to expo. Selling the front to cover with the back is really selling a chunk of gamma -- which doesn't make it a bad trade, just one with risk.

At 80 vol in Jul, the ATM straddle is worth ~ $2.50 (ish). You could make an argument that sine the stock moved $2.31 in an hour that perhaps that's cheap?... Then again, the news may be out on this, in which case, that straddle is a sale?.. Tough to say.

1. Calendar Spread
a. Buy the Jun/Jul 12.5 put spread. This bets on the stock hanging around $12.50 by expo -- neither going much higher or much lower.

b. Buy the Jun/Jul 12.5 call spread. This is similar to the one above, but looks to a more bullish move after Jun expo.


This is trade analysis, not a recommendation.

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Pre-Market: 6-13-2011

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Dr Pepper Snapple (DPS) - Call Buying in One Strike Doubles OI in Entire Issue

DPS is trading $40.21, up 0.8% with IV30™ popping up 19.5%. The LIVEVOL® Pro Summary is below.



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Dr Pepper Snapple Group, Inc. (DPS) is an integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the United States, Canada and Mexico with a varied portfolio of flavored (non-cola) carbonated soft drinks (CSDs) and non-carbonated beverages (NCB), including ready-to-drink teas, juices, juice drinks and mixers.

Eddy Altamirano showed me this one. It's order flow, but there's a little more to it...

The company has traded over 8,100 contracts on total daily average option volume of just 400. Calls have traded on a 12.4:1 ratio to puts. But, there's more... The Stats Tab and Day's biggest trades snapshots are included (below).





Let's start (rather than finish) with the Charts Tab (6 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



Check out the last two earnings cycles. We can see the stock gapped up both times. Also, we can see how vol is rising right now. So, maybe this is an earnings play?... Well, not likely. With the last earnings report on 4-27-2011, that puts the next one at the end of Jul (after Jul expiration). In fact, last year, earnings were 7-29-10. So, not earnings related... How big is this trade, anyway?...

Now we can look to the Options Tab (below). We can see that the Jul 40 calls have very low OI -- so these are opening trades. Are they big?... Check out the Stats Tab again (above). I highlighted in red the total OI in DPS over all months and all strikes -- it's just 6,521. As of this writing, the Jul 40 calls have now traded over 7,100x. In English, the trades today will more than double the entire OI in the issue on a single line in a four hours. So, yeah -- this is a lot of interest.



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



While the order flow and OI was interesting, the skew is not. There aren't a lot of OTM options that are bid, and thus we get this sort of dot chart. And that's all I have to say about that...

All in all, the call volume is huge and unless it's two sided, will more than double total OI in the issue. One for the radar, I'd say.

Possible Trades to Analyze

This is trade analysis, not a recommendation.

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Eastman Kodak (EK) - July is Coming, and so is the Vol

EK is trading $3.14, down 0.9% with IV30™ up 1.9%. The LIVEVOL® Pro Summary is below.



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Eastman Kodak Company (Kodak) is engaged in the sale of imaging products, technology, solutions and services to consumers, businesses and professionals.

This is a note mostly in reference to vol and to yesterday's order flow, which is the continuation of an accumulated position in July. Mike Bristow of Vtrader Group pointed this one out to me.

Let's start with yesterday's stats and vol (below).



We can see that IV30™ jumped 12.2%. Calls traded on a 4:1 ratio to puts with the action in the Jul 3.5 and 4 calls (more than 18,000 traded). We can see the existing OI in those lines was (is) larger than the trade volume. Let's look to the Options Tab as of this morning.



The OI jumped to 51,210 and 71,039 in the Jul 3.5 and 4 calls, respectively, so the order flow yesterday was the continuation of an accumulated position. I believe that position is long in both calls.

Let's look to the Charts Tab (6 months) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



It's no secret that EK stock has been collapsing for several years now. Once a Dow component, the company is now bordering on penny stock status (though the market cap is still ~ $800 million). On the vol side, the IV30™ was 66.19 on 5-27-2011 (so two weeks ago). As of this writing, IV30™ has climbed to 96.48, so a 45.7% increase.

Looking to the monthly vols, we can see Jul is 97 (ish) while Jun, Oct, Jan'12 and Jan'13 are in the low sixties. In English, some thing's coming this July -- and the option order flow is getting long that vol and long the deltas.

Possible Trades to Analyze

This is trade analysis, not a recommendation.

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