ADS is trading $56.64, down 4.8% today with IV30™ up 6.6%. <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TC4SqHd_vvI/AAAAAAAADUg/yAfqp2KZYVU/s1600/ads_summary.gif"> The company has traded nearly 18,000 options in the first three hours on total daily average option volume of just 1,888. All but 2,156 contracts have been puts yielding over a 7:1 put:call ratio. The largest trade was 13,290 Sep 50 puts crossed electronically on the bid on CBOE; I believe that to be a sale. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/07/ads.html">in the article</a>). The Options Tab (<a href="http://livevol.blogspot.com/2010/07/ads.html">in the article</a>) illustrates that the puts are opening (compare OI to trade size). I don't see any line in the front three months with more than 2,500 OI, so 13,290 is really big for this company. The trade printed at 10:45 EST. When I looked up Time & Sales for the stock, I see a 318,960 lot traded at 10:46 EST (i.e. one minute later). I have included the snap (<a href="http://livevol.blogspot.com/2010/07/ads.html">in the article</a>). The exchange reported the stock trade as "Regular," but it printed more than $0.50 out outside of the NBBO. The PnL chart is included below, but I am using $57.83 stock (the stock value according to the option trade) rather than the price the exchange reported which seems erroneous. <b>Trade Stats</b> Sell 13,290 ADS Sep 50 puts @ $2.30 Sell 318,960 ADS stock @ $57.83 That number shares works out to a 24 delta. Max Gain (at $50 at expo): $5,554,157 Breakeven Low: $44.50 Breakeven High: $67.41 This trade is short $112,965.00/vol. In other words, each vol point carries over $100,000 in PnL. Note that vega is not constant (the second derivative of price with respect to vol is not zero). Let's get back to the vol in a sec. First the skew tab. The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/07/ads.html">in the article</a>) illustrates the vols by strike by month. Pretty normal lookin' skew. Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/07/ads.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference. We can see a sharp price decline and the IV30™ (red line) moving well above the HV20™ (blue line). I have also included the vol chart of HV90™ (dark blue line) vs. the IV90™ (green line). Note how far the implied (green) is trading above the historical (blue). The Sep options correspond more closely to the IV90™ than the IV30™ if looking to expo. Either way, this trade sells highly elevated vol in a stock that has dropped hard recently. The trade does have room for another ~$9 of stock drop before it loses money. This is trade analysis, not a recommendation. Details, trades, prices, vols, skews, charts here: http://livevol.blogspot.com/2010/07/ads.html
There is more vanna than vomma (2nd moment) as the surface is flat and vol will rise/fall with spot and the sector and broader market. Doesn't it look to you that the stock was the upstairs-hedge since it was done under NBBO?Anyway, someone thinks the stock is neutral to higher.
It could be upstairs, but I don't think the trade was a naked put sale. Feels like a bet against vol and a delta bet. But I dunno for sure.
I was thinking it was a neutral upstairs trade here. The floor would be a buyer of spot if upstairs sold it. Did you see any other blocks?
No other blocks I could see, the rest of the stock trades were very small. This one really stood out in size.
Maybe too simplistic, but I assume the seller went neutral on the 50-strike position rather than selling the natural atm straddle. If there are any gamma trades forthcoming they won't be very large. I'll bet there was >normal volume overall in the stock as the trade went off. My guess is that the two trades were upstairs as the stock was a single print at ~25-delta.