EXXI - Re-visiting Elevated Vol

Discussion in 'Options' started by livevol_ophir, Nov 18, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    EXXI is trading $24.10, up 4.6% with IV30™ also up 3.1%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/exxi.html">in the article</a>.

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    I posted a blog on this stock on 10-20-2010 based on it's elevated vol. You can read that post here:
    <b><a href="http://livevol.blogspot.com/2010/10/exxi.html">Energy XXI (EXXI) - Elevated Vol Starts to Drop</a></b>

    The trades we analyzed surrounded selling strangles. All of them have ended lookin' pretty sweet and today this stock showed up again on the same elevated vol scan.

    <b>Custom Scan Details</b>
    Stock Price &gt;= $7 and &lt;= $70
    IV30™ - HV20™ &gt;= 10
    HV180™ - IV30™ &lt;= -8
    Average Option Volume &gt;= 1,200
    Industry != Bio-tech
    Days After Earnings &gt;=10 and &lt;=60

    The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). 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 IV30™ simply because earnings are approaching. Alternatively, I've included this scan in the "Trading Opportunities" folder. You can see that result <a href="http://livevol.blogspot.com/2010/11/exxi.html">in the article</a>.

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

    The EXXI Charts Tab is included (<a href="http://livevol.blogspot.com/2010/11/exxi.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).

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

    We can see:
    IV30™: 68.40
    HV20™: 40.32
    HV180™: 51.45

    So, IV30™ is again elevated relative to the short term and long term realized movement of the stock.

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

    <b>Possible Trades to Analyze</b>
    1. For naked vol sellers, selling the Dec 22.5/25 or 22.5/27.5 strangles trades ~68 vol. The Dec 22.5/25 strangle @ $2.50 requires EXXI be in the range ($20, $27.5) if held to Dec expo. to be profitable.

    The Dec 22.5/27.5 strangle @ $1.80 requires EXXI to be in the range ($20.70 ,$29.30). So the trade off between these two is more upside room but collecting less premium and losing a touch of downside room for the 22.5/27.5 strangle.

    Both are naked short options.

    2. Sell the Dec 22.5/27.5 strangle @ $1.80 but purchase the Dec 20/30 strangle for $0.85 for protection. This receives $0.95 (MaxGain) and locks in a MaxLoss of $1.55. The PnL Chart on Dec expo. for this trade is included <a href="http://livevol.blogspot.com/2010/11/exxi.html">in the article</a>.

    3. Sell the Dec 22.5/25 strangle @ $2.50 and purchase the Dec 20/27.5 strangle for $1.25 for protection. This yields a 1:1 MaxGain:Max loss rather than the 0.61 for trade #2, but leaves less upside room. The PnL chart for this trade is also included <a href="http://livevol.blogspot.com/2010/11/exxi.html">in the article</a>.

    Another little bonus here, this would be selling Dec vol and Dec is a month which can sort of drift off into nothingness as holidays approach... Or not...

    This is trade analysis, not a recommendation.

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

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