FIS - Options and Vol Bets on Takeover News

Discussion in 'Options' started by livevol_ophir, May 10, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    FIS is trading 29.28 with IV30&#8482 down 4.8%.

    <img src="">

    The Stock chart is a good place to start. You can see the jump recently.

    <img src="" width="550">

    <b>The News on 5-7-2010</b>
    US private equity firm Blackstone Group (NYSE:BX) is negotiating to acquire home electronic payment processor Fidelity National Information Services (NYSE:FIS), a source in the know told Reuters on Thursday.

    If the parties strike a deal, it would be the largest leveraged buyout since the financial crisis, according to the source.

    Blackstone and Fidelity declined to comment.
    Source: M2 Communications

    What's interesting is the vol move that coincided with this news (<a href="">in the article</a>). Red is IV30&#8482, blue is HV20&#8482. You can also see the vol difference in yellow.

    Usually takeover news lowers vol, takeover rumors raise vol. Since this story has a specific buyer - it's more news than rumor. Either way, vol exploded.

    The company has traded over 5,800 options in the first four hours on total daily average option volume of just 375. As we'll see soon, these trades are betting on a move - long vol, rather than this thing calming down. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) makes the trades a bit clearer.

    Although the trades weren't done in this order, they essentially turn into these bets (from what I can tell).

    (1) Long the Jun 30/35 call spread - (Jun 35 calls are opening).
    (2) Long the Jul 30/35 call spread - mostly opening.
    (3) Long the Jul 25 puts - essentially all opening.

    This is a bet the stock moves up, or it moves down. The upside call spread (rather than naked calls) makes sense as the stock climbed already from the news - so if it's confirmed, one could argue the upside is capped. Specifically, this bets it's capped near $35.

    Finally, the Skew Tab snap illustrates exactly what vol is purchased and sold in these trades (<a href="">in the article</a>).

    The reddish hue are sales, the greenish hue are purchases.

    We see bets that this thing will either come down hard (news of no takeover) or jump higher (confirmed takeover). The order flow is betting against a takeover at the current price.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. livevol_ophir

    livevol_ophir ET Sponsor

    More calls purchased today in May...