CHS - Elevated Vol, Takeover Rumors and Misread Order Flow

Discussion in 'Options' started by livevol_ophir, Oct 12, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CHS is trading $11.31, up 3.4% with IV30™ up 12.6%. The <a href="">LIVEVOL™ Pro Summary</a> is <a href="">in the article</a>.

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    The company has traded 20,000 options on total daily average option volume of just 2,974. All but 706 contracts have been calls yielding a 28:1 call to put ratio (hi, I'd like to buy a call please...). 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 Oct 11 and Nov 12.5 calls are mostly opening (compare OI to trade size), the Nov 11 calls are more ambiguous. The Oct calls look like sales, Nov 11 look like purchases, Nov 12.5 look like sales. Either way, the Oct col is up 34 points and Nov is up 7 points.

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

    The back three months are flattish, which is odd. A slight bend in the Nov vol to the upside, but basically a shapeless skew. Hmm... I see reports that the 12.5 calls in Nov are purchases from Interactive Brokers posted on Yahoo! Finance, but I disagree. They look like they were offered down (seller initiated) and then taken. I'm obviously not sure, as IBKR does get color from their own MM, so take what I say with a grain of salt (or two).

    Finally, the Charts Tab (6 months) is <a href="">in the article</a>. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

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    IV30™: 62.60
    HV20™: 44.86
    HV180™: 48

    So IV30™ is definitely elevated. We can also see the stock has dipped then risen of late. The stock actually showed up on my high vol scan, but a naked vol sale feels a touch risky in the takeover bonanza world.

    <b>Possible Trades to Analyze</b>
    1. Sell Nov - ok, just kidding... A Nov 11/12.5 call spread paying $0.55 is a nice small delta bet with a max gain to max loss of almost 2:1 and plays the fancy game of selling higher vol then purchased in a call spread, which is not common.

    2. Sell the Nov 10 puts @ $0.35. Ok, that's a naked vol sale, but downside is just $10. Maybe buy the Nov 7.5 puts for $0.05 just to avoid a cataclysm.

    3. Buy write. Buy the stock for $11.31, sell the Nov 12.5 calls @ $0.50, that's a ~$1.69 sale in the puts which are $1.55 x 1.70.

    This is trade analysis, not a recommendation.

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