HNZ - Summer Vol Seller on Earnings Projection

Discussion in 'Options' started by livevol_ophir, Jul 9, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    HNZ is trading $44.89, down small with IV30&#8482 down 4.9%.

    <img src="">

    The company has traded over 12,600 options on total daily average option volume of just 1,938. The largest trade accounted for 10,200 contracts; an Aug 44/45 strangle; the initiator sold @ $1.76 on a 10 delta (details below). 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>) illustrates that both the calls and puts are substantially opening (compare OI to trade size). Note that we project earnings right at the tail end of the Aug cycle, but since Sep vol is higher than Aug, my guess is earnings may actually fall in the Sep cycle.

    <b>Trade Stats</b>
    I got trade color from Mike Bristow (one of the best in the biz) at the Vtrader Group.
    Sell 5,100 Aug 44 puts @ $0.76
    Sell 5,100 Aug 45 calls @ $1.00
    Buy 51,000 shares of HNZ @ $44.82

    The PnL chart is included (<a href="">in the article</a>).

    At expiration:
    Max Gain (stock = $45): $906,780
    The range of profit for the strangle is ~ ($42.47, $46.97)

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

    The skew looks pretty normal. July looks a little weird to the upside, but that's just a nickel bid in the 46 calls.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    You can see the stock has remained range bound for quite some time. The initiator bets this will continue into the usually slow July/August period. I especially like this bet if earnings are in fact just after the August cycle. The stock could muddle around until Sep if that's the case. This trade is also short ~$60,000/vol in vega and the IV30&#8482 has just recently dipped below the HV20&#8482.

    This is trade analysis, not a recommendation.

    Details, trades, prices, cols, skews, charts here:
  2. Shhhhh


    You sure you don't have this backwards?

    "Sell 5,100 Aug 44 puts @ $1.00
    Sell 5,100 Aug 45 calls @ $0.76
    Buy 51,000 shares of HNZ @ $44.82"

    if this was done today looks like the calls would be what traded for $1.00, while the puts traded around $0.76
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Yep, backwards, thanks. I corrected the original post. Thanks again.