Energy XXI (EXXI) - Elevated Vol... Again...

EXXI is trading $29.20, down 2.7% with IV30™ down 1.2%. The LIVEVOL™ Pro Summary is below.



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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

I found this stock using a real-time custom scan. This one hunts for high vols. EXXI has come up on this scan before, most recently on 3-21-2010. You can read that article here:
Energy XXI (EXXI) - Elevated Vol

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 EXXI 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).




We can see:
IV30™: 52.80
HV20: 39.03
HV180: 38.14

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. We can also see that the implied has tended to trade above the historical for last six months with a few exceptions from late Apr to early May.  As of right now, with the global economy in flux and oil prices moving down, the elevated vol does feel "deserved."

Let's look to the Options Tab (below).



We can see Jul, Aug and Sep are all priced at essentially the same vol level, ~53.

Possible Trades to Analyze
1. ATM vol sale:
Selling the ATM straddle or strangle sells ~51 vol and requires that EXXI hold around ($25.80, $32.20) by Jul expo.

2. OTM Vol sale:
Selling an OTM strangle, like 26/32, requires that EXXI stay in ($24.80, $33.20) by Jul expo but collects less premium than the straddle.

Note that both of the trades examined above are naked both the upside and downside.

3. OTM sale and cover:
Doing #2 and purchasing the 25/33 strangle squeezes the PnL zone by ~$0.75 and lowers the MaxGain:MaxLoss ratio to less than 1:1, but eliminates gap risk on both sides.

4.  Skip this one altogether as the elevated vol is based on real world risk (as opposed to fake world?...)...

This is trade analysis, not a recommendation.

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Krispy Kreme Doughnouts (KKD) - Vol Diff on Rising Stock; Healthy Dougnuts?

KKD is trading $8.87, down 1.8% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.



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Krispy Kreme Doughnuts, Inc. (Krispy Kreme) is a retailer and wholesaler of doughnuts and packaged sweets.

Last earnings cycle the stock popped from $6.40 up to $8.05 or 25.8%. The stock was in the $3 range a year ago and has climbed substantially since. Here's a news snippet from a Blooomberg article last Thursday:

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Chief Executive Officer James Morgan plans to add oatmeal, yogurt, and fruit juice to the Krispy Kreme menu. The very prospect would have been laughable in the late 1990s when the chain's "Original Glazed" doughnut became a national obsession—before falling victim to overexpansion and the carb-free Atkins diet.

The new menu is part of a revival at Krispy Kreme. Its stock has more than doubled in the past year, to $9 per share. Last month the chain posted its best quarterly profit since 2004: $9.17 million on sales of $104.6 million for the first quarter ended May 1, more than double that of the year before. To keep the momentum, Morgan says he needs to sell healthier food and specialty coffee. "We weren't getting a lot of verbal complaints," he says. "But we also were not getting the sales we thought we should."

Source: Krispy Kreme Wants to Be Good for You, written by Leslie Patton.
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Today, KKD 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 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).



I've only included strikes up to 25% OTM to focus the chart on the near the money options. We can see how the front month is elevated to the back, and also that the upside skew difference is greater than the downside.

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).



I've highlighted the pop off of last earnings. HV20 is artificially elevated b/c of that move. IV30™ (63.03) is just under the HV180 (64), so vol feels sort of "fairish" at this level.

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



We can see that Aug vol is priced at ~58 and Jul is priced at ~65.

Potential Trades to Analyze
1. Two sided calendar:
The Jul/Aug 7.5/10 calendar strangle sells ~64.5 vol and purchases ~57 vol.

2. One-sided calendar:
a. The Jul/Aug 10 calendar call spread sells ~63 vol and purchases ~54 vol while benefiting from an upside move in the stock (as long as it doesn't go much higher than $10). It's an interesting way to sell elevated vol while owning some deltas for those that want to bet on a continued short-term increase in stock.

b. The Jul/Aug 7.5 calendar put spread is also on the board, but for a smaller vol scalp.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 6-20-2011

To get an e-mail alert when a new pre-market report is posted please send an e-mail to support (support (at) livevol.com) with "Pre-market" in the subject line.

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This is trade analysis, not a recommendation.

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PharmAthene (PIP) - Small Pharma, Big Order Flow

PIP is trading $2.69, down 2.5% with IV30™ up 4.6%. The LIVEVOL® Pro Summary is below.



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PharmAthene, Inc. is a biodefense company engaged in the development and commercialization of medical countermeasures against biological and chemical weapons.

This is a note on what seems to be a sneaky call accumulator in a tiny pharma company. The company has traded 4,455 contracts on total daily average option volume of just 658. Calls have traded on a 57.6:1 ratio to puts. The big trade was a Sep 5/7.5 c/s bot for $0.30 -- color from Mike Bristow of Vtrader Group. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Sep 5 calls have an existing OI of 6,696. I believe that existing interest is long, making the call spread a further accumulation of deltas in Sep.



I've included the OI chart below. The start date is 4-26-2011. The point here is simply that that interest has been accumulated of late, sort of "quietly."



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



We can see the OTM calls are bid in all three months. If you look at it for a sec. you'll realize that the 7.5 calls are bid even in July. This is a $2.69 stock.

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 has steadily dropped of late. The implied has traded above the historical vols for all six months in this chart. Though not shown in this chart, in a five day period (ish) in mid October of last year, this stock went from ~$1.50 to over $4.

Possible Trades to Analyze
The stock itself is basically an option. I guess the question is, do you want to bet that these options are accumulated by someone that's "in the know" or is this just noise?...

This is trade analysis, not a recommendation.

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Harbin Electric (HRBN) - Stock Collapse, Stock Pump Allegations... And Fraud Clusters

HRBN is trading $7.62, up 9.1% with IV30™ up 0.7%. The LIVEVOL® Pro Summary is below.



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For those that don't know, HRBN collapsed more than 50% yesterday as vol popped more than 155 points. The Livevol® Pro Summary as of the close is included below.



The news is fascinating. First, note that HRBN is one of many Chinese stocks traded on the US exchanges that's associated (fairly or not) with what seems might be an overwhelming fraud in Chinese accounting for its public companies. The stories are sad and at times, I must say, unbelievable -- to the point where auditors (like Deloitte) are receiving threats for refusing to sign off on audit results.

In HRBN's case, the focus is more on a highly unusual takeover to private bid for $24. Yeah, $24, and the stock was trading $14, and is now trading $7 (ish). So who is this takeover bidder that has no credibility?...

Mr. Tianfu Yang

And who is Mr. Tianfu Yang?

The CEO and Chairman of HRBN.

No reason for him to have credibility?...

Here's the news report from last October:

[HRBN] today announced that its Board of Directors has received a proposal letter from its Chairman and Chief Executive Officer, Mr. Tianfu Yang and Baring Private Equity Asia Group Limited for Mr. Yang and an investment fund advised by Baring to acquire all of the outstanding shares of Common Stock of Harbin not currently owned by Mr. Yang and his affiliates in a going private transaction for $24.00 per share in cash, subject to certain conditions. Mr. Yang owns 31.1% of Harbin's Common Stock.  According to the proposal letter, an acquisition vehicle for the purpose of completing the acquisition will be formed and the acquisition is intended to be financed with a combination of debt and equity capital.
Source: PR Newswire

Huh?...

The news yesterday that tore the stock down was based on a research note from Citron (a snippet is included below):

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"It is Citron's opinion that it is now time for the SEC to halt this security," said the firm, which has a disclaimer saying it does not guarantee that it's providing all of the information that may be available about the securities it writes about and that its principals "most always" hold a position in the securities it profiles on its site.

[...]

"The future of Harbin's stock price is currently propped on the crutch of a purported $24 buyout offer from its Chairman / CEO, which Citron believes is a sham," firm states. "With time stretching seven months since first proposed, we still have no binding, official takeover bid filed in an 8-K, just a few press releases, and now the boilerplate document of a purported supporting loan that seems half baked, as discussed in the last report."
Source: TheStreet.com
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Oh... That doesn't sound very good... And by the way, what do they mean by a halt?

Look at Chinese stock LFT - they halted on 5-31-2011 and haven't traded yet. Yeah, going on three full weeks.  What do you do if you're short options?  Hell, what do you do if you're long options?...

As for HRBN, let's look at the Skew Chart -- see waas sappening.



We can see the monotonic term structure -- with vol elevated in the front and then dropping to the back. Right now Jul vol is 327, Sep is 243 and Dec is 196. Btw, the Jun 5 puts (yeah, the ones expiring in six hours) are still dime bid and have traded to $0.15. That's ~ 800 vol.

Here's the Options Tab -- we can see the action and the vols.



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 collapse yesterday and the vol explosion. We can also see this "propping up" phenomenon -- that is, the stock kind of hung around the same level and didn't do much... ya know , until yesterday.

So after all this, what is HRBN saying? Here you go:

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(Reuters) - Harbin Electric said a research report that pulled its shares down by more than 50 percent on Thursday, was factually incorrect.

[...]

The CEO and the company reserve the right to bring legal actions against Citron Research for these erroneous allegations, Harbin said in a statement.

Harbin could not be immediately reached for comment.

Source: Reuters
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Possible Trades to Analyze
I have so many trades that seem interesting and worth examining -- but there's one thing, here. A halted stock means halted options and that means, I pass -- completely.


Well... I am short the baby puts in Jun (but I didn't sell today).

For the record, I have stated that fraud clusters, so there's likely more to come. I've demonstrated this rigorously through empirically data and even showed how portfolios can be immunized from fraud risk with some fancy mathematics.  For more information on that report,contact me.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 6-17-2011

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InterDigital (IDCC) - Monotonic Term Structure Persists, Stock Drops

IDCC is trading $34.95, down 0.9% with IV30™ down 0.7%. The LIVEVOL® Pro Summary is below.



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InterDigital, Inc. (InterDigital) designs and develops advanced digital wireless technologies for use in digital cellular and wireless IEEE 802-related products and networks.

I wrote about this company ten days ago, on 6-6-2011. I noted that the term structure of vol showed a monotonic increase as we approached the front months as well as the activity from some put buyers in Jun and Jul. At the time, IDCC was trading $37.46. You can read that article here:
InterDigital (IDCC) - Vol Rising, Puts Trade

Today, the stock continues to appear on the real-time custom scan for calendar spreads. This time between the second and third months (since Jun is expiring tomorrow).

Custom Scan Details
Stock Price GTE $5
Sigma2 - Sigma3 GTE 7
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 and LTE 50
Sigma2, Sigma3 GTE 1

The goal with this scan is to identify third months that are cheaper than the second month by at least 7 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.

We can look to the Skew Tab (below) and see the elevated vol in the second month (yellow curve) relative to the third month (green curve).



There's a parabolic shape to the second month and a flatter shape to the the Sep options. Note the oddity here (which I discussed in the blog ten days ago) that earnings are due out after the Jul cycle, yet Jul is elevated.

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).



As usual, I'm interested in the vol portion. Check out how high IV30™ is relative to the short-term historical vol (HV20) and the long-term historical vol (HV180). Specifically:

IV30™: 68.15
HV20: 42.28
HV180: 41.56

In the post ten days ago, those readings were:

IV30™: 64.76
HV20: 39.49
HV180: 40.96

So everything is higher, but the vol diff is still about 25 points. Interesting...

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



Potential Trades to Analyze
I'll actually copy and paste the company specific disclaimer from last time:
"This is certainly one that requires knowledge of the news that's driving vol up."

Having said that...

1. The Jul/Sep 35 straddle calendar spread purchases ~ 56 vol and sells ~68 vol while owning the earnings cycle in Aug.

2. Going diagonal with some deltas is also a possibility - for example the Jul 32/Sep 34 put spread sells ~70 vol and purchases ~57 while picking up that earnings and some negative deltas. If you're bullish, then the call side also has some potential trades.

Still, it would be nice to know what's goin' on with the term structure, first.

This is trade analysis, not a recommendation.

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GameStop (GME) - Elevated Vol, Parabolic Skew

GME is trading $26.28, up 0.6% with IV30™ down 2.1% as of ~ 10:35am EST. The LIVEVOL® Pro Summary is below.



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GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise.

I wrote about this one for TheStreet.com, so no specific trade analysis here, but this is an elevated vol note. I found this stock using the real-time custom scan that filters for high implied vols relative to historical.

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 GME 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).



We can see:
IV30™: 34.78
HV20: 19.76
HV180: 25.76

So IV30™ is elevated to the historical measures. We can also see that IV30™ tends to trade above the historical vols in this stock – the trend has been persistent for the last five months (ish). The HV20 is particularly low of late given the recent “non-movement” of GME stock (also highlighted in the chart above).

Let’s look to the Skew Tab to see if there are any interesting skew irregularities.



The Jul vol is actually quite pretty – no kinks. We can also see that the OTM calls do increase in vol creating a parabolic skew – the option markets reflect upside risk similar to the downside (as opposed the normal shape of a downward sloping curve).

Finally, let’s turn to the Options Tab for completeness.



This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 6-16-2011

To get an e-mail alert when a new pre-market report is posted please send an e-mail to support (support (at) livevol.com) with "Pre-market" in the subject line.

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This is trade analysis, not a recommendation.

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Finisar (FNSR) - Earnings Mover, Giant Vol and Patterns

FNSR is trading $17.90, down 6.0% with IV30™ up 21.9%. The LIVEVOL® Pro Summary is below.



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Finisar Corporation (Finisar) is a provider of optical subsystems and components that connect short-distance local area networks (LANs), and storage area networks (SANs), and longer distance metropolitan area networks (MANs) fiber-to-the-home networks (FTTx), cable television networks (CATV) and wide area networks (WANs).

The company has earnings due out today AMC, and this one could be fun. Let's start with order flow. The company has traded just under 23,000 contracts on total daily average option volume of just 5,979. Puts have traded on a 3.2:1 ratio to calls. The front month vol is up 64.1 points today as the rest of this month becomes essentially pure earnings vol. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action in Jun. The Jun 18 puts and Jun 16 puts have traded 4,263 and 2,450 times, respectively. Both of those lines have traded more than twice the existing OI.



We can see the front month ATM straddle (the earnings day options) are priced at ~$2.85. Note that this is just an $18 stock. Crazy expensive right? Well, how about this:

9-2-2010 earnings cycle: The stock moved up $1.99 with the font month ATM straddle
worth $1.72.

12-1-2010 earnings cycle: The stock moved up $3.29 with the font month ATM straddle worth $1.92.

3-8-2011 earnings cycle: The stock moved down $15.43 with the font month ATM straddle worth $4.70.

Get the pattern? The last three earnings cycles the stock has gapped more than the ATM straddle, right after earnings.

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



We can see the front month is elevated to the back as it represents essentially that single event today, earnings AMC.

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 was in the mid 40's this year and now is a teenager.

Possible Trades to Analyze
This one is simple: Do you think FNSR will move more than the straddle again, or has that last gigantic move in the prior cycle created too high vol right now?  The Jun 13 puts are priced at $0.20 mid-market.  That's 280 vol.  If you're selling the earnings move, there is so juicy juice to sell.

This is trade analysis, not a recommendation.

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