CTL - Huge Put Purchase on Upside Skew Collapse (Why Skew Matters)

Discussion in 'Options' started by livevol_ophir, May 25, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CTL is trading 33.24 with IV30&#8482 up 14.8%.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/S_vhWZU9YBI/AAAAAAAACj4/qKPf0MvFIO8/s1600/ctl_summary.gif">

    The company has traded over 10,000 puts in the first hour on total daily average put volume of just 501. The call : put ratio is 1:165 with essentially all of the volume in the Jul 30 puts. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/05/ctl.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/05/ctl.html">in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size). Note also the large OI in the Jun 35 calls (though only a one lot has traded today on that line).

    The Jun 35 calls OI jumped from 181 to 9,271 on Apr 23 (so the trade was Apr 22). The largest trades for that day are included (<a href="http://livevol.blogspot.com/2010/05/ctl.html">in the article</a>).

    You can see there were huge sales of both the Jun 35 calls @ ~$0.85 and the May 35 calls @ $0.75. The May calls have expired worthless, so they were a nice winner. Note the purchase price of the puts today (Jun 30 puts) for $0.85. If this is the same trader (feels like it is) - then s/he paid for his puts with the premium collected in the calls a month ago.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/05/ctl.html">in the article</a>) illustrates a couple of things, one of which is very cool (to me at least).

    1) You can see the vol in the Jul 30 puts relative to the rest of the chain.
    2) Even more cool, check out the vol in the Jun 35 calls.

    It looks to me like that absolute collapse in Jun 35 vol (there is short interest there) has enabled the trader to go ahead and use that premium for the Jul puts.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/05/ctl.html">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 the IV30&#8482 relative to the actual move (HV20&#8482). The options market is looking for a larger move than the stock has had recently. But oddly enough, almost no probability that an upside move occurs in Jun. Kinda cool.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. Ophir, good topics. You should start a journal with these.

    If they were trading the risk-reversal you would assume it's an insider hedging some exposure, but it's odd that they're alternating. There are some size holders and they're pretty regular on insider sales. CTL seems too small a cap to bother with OTC.

    I would guess it's not a spec, as anyone with any sophistication would avoid such an illiquid spot and paying 400-500 bps over the R/R calls.

    A friend of mine has accumulated 6000 AAPL 20/50/80 flies in June.
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Thanks Atticus. I kind of use the blog as the "journal."
  4. Cool, but you should aggregate here and get your money's worth!
  5. livevol_ophir

    livevol_ophir ET Sponsor

    Ain't that the truth... :cool: