CX - Vol Buy, Delta Bet on Dipping Stock

Discussion in 'Options' started by livevol_ophir, Aug 24, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CX is trading $7.79, down 4.2% with IV30&#8482 jumping up 13.9%.

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    CX is a global cement manufacturer with operations in North America, Europe, South America, Central America, the Caribbean, Africa, the Middle East and Asia.

    The company has traded over 18,000 options in the first two hours on total daily average option volume of just 3,896. The largest trade was 5,000 Sep 7/8 risk reversals (buy put/sell call) no stock - net credit of $0.03. Darren Story from Student Options on the floor gave me this color. 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 calls are opening (compare OI to trade size). The put OI is long as best I can tell; meaning this will ~double the OI. The initial interest bought those puts for ~$0.10 a few weeks ago.

    Note the monthly vols at the top of the tab. Sep, Oct, Jan '11 and Apr '11 have all converged to 50. Each month is also up substantially today, with the front experiencing the largest rise. This trade gets long the elevated vol with a decided delta bet.

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

    We can see above that while the trade is premium neutral (or even small positive), it is long vol (buying the skew). Specifically it buys 60 vol, sells 48.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue vs HV180&#8482 - pink). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Note the recent stock drop and coinciding vol pop (highlighted in the chart). The IV30&#8482 (50) is 18 points higher than the HV20&#8482 (32) and 7 points higher than the HV180&#8482 (43). Any way you slice it, this is a purchase of elevated vol and a short delta bet in a dipping stock.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts, skews here:

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