ENTR - Time Spread in Play

Discussion in 'Options' started by livevol_ophir, Nov 3, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ENTR is trading $8.40, up 1.2% with IV30™ up 11.8%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/entr.html">in the article</a>.

    <img src="http://www.livevolpro.com/help/images/blog/entr_summary.gif" />

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    ENTR is a semiconductor company that designs, develops and markets systems solutions to enable connected home entertainment.

    The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

    <b>Custom Scan Details</b>
    Stock Price &gt;= $5
    Sigma1 - Sigma2 &gt;= 8
    Average Option Volume &gt;= 1,000
    Industry != Bio-tech
    Days After Earnings &gt;=5 &lt;=70
    Sigma1, Sigma2 &gt;= 1

    The snapshot of the scan is included (<a href="http://livevol.blogspot.com/2010/11/entr.html">in the article</a>) in case you want to build it yourself in Livevol Pro™.

    <img src="http://www.livevolpro.com/help/images/blog/calendar_spread_scan.gif" width="600" />

    The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

    Looking to the Skew Tab (<a href="http://livevol.blogspot.com/2010/11/entr.html">in the article</a>), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).


    Now we can turn to the Charts Tab, vol only (<a href="http://livevol.blogspot.com/2010/11/entr.html">in the article</a>). IV30™ - red vs HV20™ - blue vs HV180™ - pink.

    <img src="http://www.livevolpro.com/help/images/blog/entr_charts.gif" width="600" />

    Note how the IV30™ has popped past both the short-term realized and the long-term realized.

    Finally, let's look to the Options Tab (<a href="http://livevol.blogspot.com/2010/11/entr.html">in the article</a>).

    Note that Nov vol is ~90 while Dec is ~76.

    <b>Potential Trades to Analyze</b>
    There are couple ways to play this, one would be a straight vol sale, the other is calendar spread.

    1. Buy the Dec 7.5/10 strangle for $0.85 and sell the Nov 7.5/10 strangle @ $0.40 for a total debit of $0.45. That purchases ~74 vol and sells ~89 vol.

    2. Sell the Nov 7.5/10 strangle naked, risky. I actually like the calendar better, oddly enough.

    This is trade analysis, not a recommendation.

    <b>Follow Live Trades and Order Flow on Twitter: @Livevol_Pro</b>

    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/11/entr.html">http://livevol.blogspot.com/2010/11/entr.html</a>


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