BIG - Large Jan Put Spreader

Discussion in 'Options' started by livevol_ophir, Jul 19, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    BIG closed at $33.39 on Friday, down 3.8%.

    <img src="">

    The company traded over 17,000 options on total daily average option volume of just 1,009. All but 353 contracts were puts. Essentially all of the action was 8,469 Jan '11 25/27.5 put spread purchases. 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 opening (compare OI to trade size).

    <b>Trade Stats</b>
    Buy 8,69 Jan 27.5 puts for ~$1.40
    Sell 8,69 Jan 25 puts @ ~$0.80

    This yields a max gain ($1.90) to max loss ($0.60) ratio of ~3.2/1. If held to expiration, the trade requires BIG to go below $26.90.

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

    The Jan '11 skew looks normal; it's actually a pretty shape. The order flow didn't force a kink. However, you can see how the Aug 27.5 puts have exploded. Very cool.

    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.

    Note that the HV20&#8482 is well above the IV30&#8482. The IV180&#8482 (38) however is above the HV180&#8482 (35). These longer term vols are more relevant to the Jan '11 trade.

    If you like the put spread, a sale of the Aug 27.5 puts might aide in funding it.

    This is trade analysis, not a recommendation.

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