ATLS - Large Consecutive Naked Upside Option Trades

Discussion in 'Options' started by livevol_ophir, Feb 25, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

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

    ATLS is trading 31.74 with IV30™ up 5%.

    The company has traded over 5,000 options today in the first 30 minutes on total daily average option volume of just 347. Yesterday the company traded over 10,000 contracts. Today essentially all the volume has been the Jun 35 calls purchases - yesterday, 5,000 were also purchased and funded with a 5,000 sale of Jun 30 puts. The Stats Tab and Day's biggest trades snapshots are included (in the article).

    The Options Tab snapshot (in the article) illustrates a few things:
    (1) The Open Interest (OI) is by far the largest on the Jun 30 calls and Jun 35 puts. I don't see anything larger than 432 other than those two.
    (2) The trades today are focused entirely on the calls thus far.

    Yesterday the puts were sold @ $1.70 and the calls purchased for $1.50 - i.e. the trade was a credit naked short the downside and long the upside (this trade is called a "risk reversal" or just a "risky.") Today the calls are trading for 1.35 with the stock down.

    The Skew Tab snap (in the article) shows the front month (red) with a typically normal skew. The back months though have a remarkably flat shape. My guess is that this is a reaction to the order flow. You can read about "normal" option skew and why it exists by clicking <a href=""><b>HERE</b></a>.

    Skew Legend:
    Red - Front month
    Yellow - Second month
    Green - Third month
    Blue - Fourth month

    The Charts Tab for the underlying (one year) is included for completeness (in the article).

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