COCO - Takeover Chatter Pops Vol. Stock Off Year Lows

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

  1. livevol_ophir

    livevol_ophir ET Sponsor

    COCO is trading $5.34, up 9.0% with IV30&#8482 up 18.7% (14.4 vol points).

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    Takeover chatter and a bold Nov call purchase in the 5 and 7.5 lines pushed the stock up quickly intra-day. Mike Bristow from Vtrader Group gave me color. The Livevol Pro Tick Chart is included (<a href="">in the article</a>).

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    The company has traded over 21,000 options on total daily average option volume of just 5,334. All but 1,709 contracts have been calls. The largest trades have been the Nov 5/7.5 call stupid, as well as Oct 6 call buying more than 5,000x. 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 all the calls are mostly opening (compare OI to trade size). We can also see that the Sep, Oct and Nov vols are ripping up 17, 14.2 and 6.6 points respectively (top of tab)

    COCO, EDMC and ESI have each fallen to 52 wk lows, well off their year highs. The risk in these stocks has been the loans. They have become sort of the sub-prime of student loans according to a few. Legislation is on the hill which could have a substantive impact on how these companies make money moving forward. Consolidation is a reasonable bet. I have included the Charts Tab comparison stock (underlying only) for all three (<a href="">in the article</a>).

    We can see COCO has performed the worst of this group over the last 6 months. Generally I feel like takeover chatter is non-sense. I think the reaction has been so pronounced for COCO for a few reasons:

    1) The stock(s) are at year lows, so any kind of good news feels bounce worthy.
    2) We are entering a time when M&A seems to be picking up. If that's true, anything is possible and chatter feels more like news.
    3) The options trades with the news, in particlaurl the Nov 5/7.5 call stupid was size enough to feel like a big bet, rather than the accumulation of many small bets.

    The skew in COCO is relatively tame, it's just the vol in general that's now quite elevated day over day. HV180&#8482 is 63, IV30&#8482 is 93. But, HV20&#8482 is 130. In other words, the long term HV feels "unrelated" to near term realized and implied moves.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts here:

    Legal Stuff:
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  2. Busta21


    LONG 25 OCT 6 CALLS....this looks like a good trade possible shorts may be covering.
  3. medisoft


    I see that Coco has very high debt/equity ratio... maybe this is not as good for long term