CMC - Takeover Rumers with Options Trading

Discussion in 'Options' started by livevol_ophir, Mar 9, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    Details, trades, charts, skews, prices here:

    CMC is trading 17.40 with IV30&#8482 up 19%.

    The company is often times a takeover rumor target. For the last blog I wrote about them you can go to the article.

    Today the rumors have returned seemingly because of rumors surrounding a takeover for AKS - a peer. Oddly enough, AKS is relatively quiet today.

    CMC has traded over 36,000 options in the first hour and a half on total daily average option volume of just 3,252. ~32,000 have been calls for a 7:1 call:put ratio. The largest trades have been purchases in the Mar 17.5 calls. The Stats Tab and Day's biggest trades snapshots are included (in the article).

    The Options Tab (in the article) illustrates that the Mar 17.5 calls have traded less then OI (open interest). With relatively little effort you can verify that the existing OI is long - since the trades today are pre-dominantly long as well the OI will increase - these are opening trades. The Apr 20 calls are active as well. You can also see that Mar vol is the highest of all months even though earnings are in the Apr cycle (March 24 BMO - a vol event).

    The Skew Tab snap for today is also included in the article. Notice a few things:
    (1) The front month (red) is well above the other months.
    (2) The front month has a reverse skew - i.e. the upside is bid.
    (3) The other months have relatively flat skew.

    To read why option skew exists and what "normal" skew is, you can go here:

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

    Finally, the Charts Tab (6 months) is in the article. The top portion is the underlying, the bottom the vols. The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Note a couple of things:
    (1) The IV30&#8482 (red line) spike pushes it well above the HV20&#8482 (blue line).
    (2) At the very bottom you can see the option volume bars - several times, almost cyclically, there are high volume pre-dominant call buying days (tall green bars). Each is followed by small price increases but then ultimately a price retreat.

    This is trade analysis, not a recommendation.

    Details, trades, charts, skews, prices here: