ECA - Vol Explodes, Calls in Play Size

Discussion in 'Options' started by livevol_ophir, Sep 30, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ECA is trading $29.78, up 3.2% with IV30™ ripping up over 40%.

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    Let's first look to the Tick Chart (<a href="">in the article</a>). We can see an incredible turn up in the stock and vol (that indicates call buying) as of midday.

    <img src="" width =500">

    I don't really see any news other than some MLP tax treatment stuff, maybe...

    The company has traded over 35,000 options on total daily average option volume of just 2,798. All but 2,911 contracts have been calls, yielding an 11:1 call : put ratio. The largest trades are Oct 30, 31 and 32 call purchases where 6,874, 17,177 and 1,209 calls have traded respectively. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

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    The Options Tab (<a href="">in the article</a>) illustrates that the calls mostly opening (compare OI to trade size). You can also see that Oct vol is up more than 19 points to nearly 47.

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

    October is awesome. It's an entirely backwards skew, where the upside is bid and the the curve has a positive linear slope throughout. To read why skew exists and what "normal" skew looks like, you can read this: <b><a href="">Option Skew: A Case Study</a></b>.

    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™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    The stock has been relatively calm until just the last few days. We can also see the wild upturn in the IV30™ at the bottom shooting well past historical vol both short term and long term. Finally, check out the order flow at the very bottom - the green volume bar indicates opening order customer call buying.

    This is trade analysis, not a recommendation.

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

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  2. livevol_ophir

    livevol_ophir ET Sponsor

    Vol up over 43% now...
  3. Hi Ophir- Good write ups...always interesting. So what do you like here? I haven't played in this space in a while, but sure wouldn't want to be directionally short based on the action. Also, I see earnings on 10/20, after Oct expiration. Maybe buy the Oct 34 / Nov 30 diagnol? Long bias in the stock, Nov IV may even go further bid due to earnings, and you get to finance part of it with some crazy Oct skew. Like I said, haven't done this in a while...curious to hear what you think?
  4. livevol_ophir

    livevol_ophir ET Sponsor

    I like how you're thinking. Naked short upside feels too risky. Naked long upside feels expensive. I can't actually give a one-on-one recommendations, but your thought process seems reasonable (and then some). Not sure if you want to play this as a delta bet or a vol bet (or both). Just ask yourself which bet you want to trade, then start thinking through the possible trades. Diagonal seems like a nice place to start.
  5. Fair enough. Thanks for your response. Will see how things open tomorrow and may put something small on in the experimental account.
  6. Hey, Ophir, I see you got your name into a BBG article on AirTran. Nice exposure, that.
  7. livevol_ophir

    livevol_ophir ET Sponsor

    Thanks. Actually they interview me almost daily... Great ppl over there Jeff and Tara.