BKD - Vol Hunter Bets On Convergence

Discussion in 'Options' started by livevol_ophir, Aug 11, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    BKD is trading $14.19, down 3.7% with IV30&#8482 up 1.0%.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TGLBamMO5XI/AAAAAAAAEBs/-jQb3NlHevM/s1600/bkd_summary.gif">

    The company has traded over 9,060 options in the first two hours on total daily average option volume of just 220 (not a typo). All but 60 contracts went up in a large Jan'11 trade. 3,000 Jan '11 15/20 call spreads bot funded with 3,000 Jan'11 15 puts sld. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/bkd.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/bkd.html">in the article</a>) illustrates that all the trades are mostly opening (compare OI to trade size).

    <b>Trade Stats</b>
    Buy 3,000 Jan'11 15 calls for $1.85
    Sell 3,000 Jan'11 20 calls @ $0.35
    Sell 3,000 Jan'11 12.5 puts @ $1.20
    Total debit per spread is $0.30. The PnL chart at Jan'11 expo. is included (click to enlarge).

    The 52 wk range for BKD is [$12.72,$22.21]. The PnL at those points is:
    PnL($12.72) = -$90,000
    PnL($22.21) = $1,410,000

    We can see a rather clever put sale; just below the yearly low. Well, I guess it's clever unless the stock collapses; then it's not clever, it's a career ender.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/bkd.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV120&#8482 - green vs HV120&#8482 - purple). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/TGLMv3rTJzI/AAAAAAAAECc/DVP1nUWkZXI/s1600/bkd_charts.gif" width = "550">

    A very interesting phenomenon; look how much higher that IV is to the HV. In the 12 point range or 30% of the HV. Then look back a few months (same chart) at how well the two tracked. This is a bet on convergence. This trade sells 2 options for every one it buys and assumes (hopes) nothing will propel the stock below it's 52 wk. low. On the vol side, I love this trade. The deltas, I have no real opinion. This could be an interesting one to look at given the vol diffs and the new found liquidity in Jan '11 options.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. Great information! Please keep posting this kind of "insider option" data on this site. there is rarelyactionable information posted here that isnt rehash of reshash.

    keep it up!

    thank you
  3. livevol_ophir

    livevol_ophir ET Sponsor