FCS - Put Buyer Breaks Vol Term-Structure

Discussion in 'Options' started by livevol_ophir, Nov 12, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    FCS is trading $12.38, up 2.3% with IV30™ up 9.3%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/fcs.html">in the article</a>.

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    The company has traded over 5,500 options on total daily average option volume of just 508. Only 12 of the contracts have been calls, yielding a 460:1 put:call ratio. It's the Dec 11 and 12 puts that are trading. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/11/fcs.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/11/fcs.html">in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size). When looking down the entire option chain for FCS, I don't see any OI larger than 2,141, so the Dec 11 put volume is very large.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/11/fcs.html">in the article</a>) illustrates the vols by strike by month.

    I like this chart - we can see the Dec downside has spiked past the Feb'11 downside on the 11 strike. The vol adjustment makes sense, but might yield a trading opportunity. It's common for Dec vol to be below a back month (seasonal vol phenomenon), but this change in skew breaks the term-structure pattern.

    Finally, the Charts Tab (6 months) is <a href="http://livevol.blogspot.com/2010/11/fcs.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/fcs_charts.gif" width="600" />

    We can see the stock rise then small dip. What I see is the IV30™ popping past both the short-term (HV20™) realized and the long-term realized (HV180™). Note that this is only a $12 stock, so it can only go down $12... if you know what I mean...

    Right now the vols are:
    IV30™: 48
    HV20™: 32
    HV180™: 45

    It feels like 50 vol or higher is around where a vol sale starts to become enticing.

    <b>Possible Trades to Analyze</b>
    1. Nice and simple: Buy the Feb/Dec 11 put spread and pay $0.40 if possible.

    2. For you risk lovers, sell the Dec 11 puts naked @ $0.30 if possible (there is a lot of liquidity at that price). That's 56 vol. Maybe try to sneak a $0.10 bid in the Dec puts to cover - receive $0.20 total. Note though, the MaxGain:MaxLoss ratio is 1:5.

    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/fcs.html">http://livevol.blogspot.com/2010/11/fcs.html</a>

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  2. lol, no I dont know what you mean, if the stock goes to $5 then you will sit on your short vol position with a negative 15-20 vol points. Since when does it matter at what absolute price levels a stock trades????

  3. livevol_ophir

    livevol_ophir ET Sponsor

    What I was hinting at was that a retail account will have to pay less margin on this.