EXPE - Vol Climbs on Put Buyers into Earnings; Possible Arb

Discussion in 'Options' started by livevol_ophir, Oct 25, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    EXPE is trading $28.53, up 0.9% with IV30™ up 13.1% and earnings due out in three days. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/10/expe.html">in the article</a>.

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    The company has traded 10,000 options in the first four hours on total daily average option volume of just 3,294. Puts have traded on a 2.6:1 ratio to calls, with the action in the Nov 29 and 30 puts. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/10/expe.html">in the article</a>).

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

    The Options Tab (<a href="http://livevol.blogspot.com/2010/10/expe.html">in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size). The flow looks long. The Stats Tab above indicates that people are getting long premium and short deltas (in options) - i.e. buying puts. Of the eight largest trades today (above), seven are puts going up on the offer, the eighth are calls hit on the bid.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/10/expe.html">in the article</a>) illustrates the vols by strike by month.

    We can see the vol divergence opening up between the front month and the back (which is expected into earnings). Note also from the Options Tab (above) that the Nov vol is up 7 points, while Dec is up 3.1 and Jan'11 is up 1.4.

    Historically EXPE earnings vol is pretty fair valued - it looks like the one day ATM straddle went up 4/8 and down 4/8 days.

    Finally, the Charts Tab (6 months) is <a href="http://livevol.blogspot.com/2010/10/expe.html">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.

    We can see the rather impressive vol increase of late. It's also interesting to note that EXPE IV30™ tends to trade above it's long term realized (HV180™).

    As of this writing, the Nov 26 puts are offered @ $0.55 (I know the snap I took doesn't show it, just trust me). If one could buy those for $0.55, sell two of the Nov 25 puts mid-market @ $0.35 and pay $0.20 in the Nov 24 puts, that's a $0.05 butterfly on a bet that EXPE goes down on earnings. Might be worth the gamble for small. If you can get it for even, well.... you know...

    This is trade analysis, not a recommendation.

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    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/10/expe.html">http://livevol.blogspot.com/2010/10/expe.html</a>

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