CYD - Sep Multi-legger Bets on Drop

Discussion in 'Options' started by livevol_ophir, Aug 6, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CYD is trading $18.74.

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    The company has traded over 19,000 options in the first hour on total daily average option volume of just 657. The largest trade accounted for essentially all the volume; buy the Sep 17.5/15 put spread and fund that with a Sep 20 call sale. Mike Bristow of Vtrader Group gave me 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 all three strikes were opening (trade volume >> OI).

    <b>Trade Stats</b>
    Buy 6,350 Sep 17.5 puts for $0.85
    Sell 6,350 Sep 15 puts @ $0.15
    Sell 6,350 Sep 20 calls @ $0.60
    This gives us a put spread for $0.70 and selling calls to fund it yielding a total of $0.10 debit.

    The PnL chart is included (<A href="">in the article</a>).

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

    The trades are up and down the skew; selling the highest and lowest, buying the middle. The bet is pretty simple; CYD goes down below $17.40 by Sep expo, or vol jumps on the bottom side of the skew (market decline).

    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). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Notice how high the IV30&#8482 is relative to the HV20&#8482 (50 vs 33). I like that this bet sells two options for the one purchased. The 52 wk range is [$8.16,$21.68]. This trade starts to lose size above $20.

    This is trade analysis, not a recommendation.

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