ARM - Strangle Sale in Nov on Earnings Cycle

Discussion in 'Options' started by livevol_ophir, Sep 22, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ARM is trading $14.93 with IV30&#8482 up 0.9%.

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    The company has traded over 12,000 options in the first three hours on total daily average option volume of just 1,964. The largest trade has been 5,000 Nov 14/15 strangle sales (10,000 contracts) @ $2.00. 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 calls and puts are mostly opening (compare OI to trade size). You can also see that Nov vol is elevated to Oct because of a potential earnings cycle (last cycle was 8-3-2010).

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

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    We can see Nov elevated to Oct. Other than that, a pretty normal skew, though the 17 strike does show a relatively large divergence.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV60&#8482 - yellow vs HV60&#8482 - blue vs HV180&#8482 - pink).

    The strangle sold 53.5 vol on average. I see that IV60&#8482 is 53, while HV180&#8482 is 56 and HV60&#8482 is 57.6. This vol sales feels cheap to me. Even odder to me, ARM does have a bit of a history of moving on earnings news more than the straddle was pricing.

    The 52 wk range for ARM is [$6.80, $17.22]. The strangle sale on Nov expo wins if the stock is in ($12, $17) which is a pretty wide range. Basically, I'm not in love with this trade, but selling options usually makes me feel warm and fuzzy.

    This is trade analysis, not a recommendation.

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

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