ADTN - Vol Purchase into Earnings on Crushed HV

Discussion in 'Options' started by livevol_ophir, Jul 6, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ADTN closed at 27.24 on Friday.

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    Before getting to the order flow on Friday, let's look at the Charts Tab (6 months) below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Note how the stock price has been resilient in the face of the overall market drop. The stock has remained in a very tight range over the last month or so. You can see how the HV20&#8482 (blue line in the bottom chart) has dropped precipitously yet at the same time the IV30&#8482 (red line in the bottom chart) has risen. The divergence is now 46 to 20.

    The company traded over 5,000 options on total daily average option volume of just 699. The action was in the Jul 25 puts (purchases) and the Aug 30 calls (sales) totalling 5,054 contracts. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size) but the calls are ambiguous. If you look at OI today, we can see that it jumped by the trade amount, so the interest is short and the trades on Friday were opening again. You can also see that July vol is well above Aug; earnings are scheduled for 7-14-2010 BMO(a vol event).

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

    It's interesting to see that the put purchase in July is on 59 IV, and the Aug call sale is 33 IV. The skew is normal but pronounced and the July vol is elevated b/c of earnings. Sort of a double whammy to the trade. The spread paid even; i.e. bought and sold options for the same price of 40. This will be an interesting earnings to watch as it's just three trading days before expiration. It feels like vol should be coming down given the HV, but with earnings coming up, that's tricky.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here: