AXL - Skew Kinks on Takeover Order Flow

Discussion in 'Options' started by livevol_ophir, May 24, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    AXL is trading 8.60, up 4% today.

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    The company has traded over 9,000 options in the first hour on total daily average option volume of just 2,223. All but 259 contracts have been calls for 34:1 call : put ratio. The action has been mostly in the Jun 10 calls. 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 the action in the Jun 10 calls is mostly opening (trade volume >> open interest). The Jun 9 calls are also opening. From what I can see, both of these lines are pre-dominantly purchases.

    The Skew Tab snap (<a href="">in the article</a>) illustrates a cool phenomenon.

    I've highlighted the Jun 10 calls (circled). You can see the pronounced rise in vol from the 9 calls to the 10. Also, you can see how the Jul 10 calls (yellow) are also much higher vol than the Jul 9's now. This kink in the skew is from the order flow (i.e. the opening purchases). This feels takeover "rumorish."

    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 (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.

    A few things to note:
    1) The stock price has dropped hard recently from ~$12 to ~$7.5, or about 30% in less than a month. The entire auto parts industry has been smashed.

    2) IV30&#8482 (the red line in the bottom chart) is now actually above the historical vol (actual stock movement - the blue line).

    3) The volume today is already the largest (or close to the largest) in the last six months. The green coloring indicates the ISE sentiment (predominant opening order customer call buying on the ISE).

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. livevol_ophir

    livevol_ophir ET Sponsor

    Over 10,000 Jun 10s traded now with an hour to go.