DAL - Liquidity in Jan '11 with Spiked Vol

Discussion in 'Options' started by livevol_ophir, Aug 20, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    DAL closed at $10.78 with IV30&#8482 up to 53.63 (up over 3 points yesterday).

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TG6Aor5V0OI/AAAAAAAAENM/SH4Qz3rXGSM/s1600/dal_summary.gif">

    The company traded over 25,000 options on total daily average option volume of just 6,829. Over 17,000 of those contracts traded in the Jan '11 options. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/dal.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/dal.html">in the article</a>) illustrates the action.

    Best I can tell, these were the trades:
    Buy Jan '11 12 and 14.5 calls
    Buy Jan'11 10 puts
    Sell Jan '11 9 puts

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/dal.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV180&#8482 - orange vs HV180&#8482 - pink). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Note how much higher the long term IV is relative to the realized vol (HV). The Jan '11 options have 58 vol while the HV180&#8482 is 51. If you want to sell this vol, selling the 11 straddle and covering up with some wings could be a play; especially if you sell 2 and cover just once on the downside to keep some premium since this is just an $11 stock. Doing this in Dec instead is also a possibility.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts here: