HRB - OTM Call Accumulators in Sep on Earnings Today AMC

Discussion in 'Options' started by livevol_ophir, Sep 2, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    HRB closed at $12.94 yesterday. Earnings are today AMC.

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    Into earnings AMC today the company traded over 18,000 options yesterday on total daily average option volume of just 3,726. The action was in the Sep 14 calls, which traded 9,381 times (substantially purchases). 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 the calls had substantive OI before, though smaller than the trade volume. This morning the OI is now 12,445 from 5987, so the calls were opening on long OI. On 8-27-2010, ~3,400 of these calls traded, mostly purchases. So the OI has opened up to its current level within the last 5 days.

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

    Note how the Sep 14 line is kinked up into earnings (highlighted in the chart).

    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.

    Two things jump out pretty obviously.
    1) The stock is way off it's highs and in the midst of a free fall. The 52 wk high is $23.23, 52 wk low is $12.54.
    2) The IV30&#8482 has a massive divergence to the HV20&#8482. As of yesterday's close the gap was 47.5 to 23.40; so IV30&#8482 is more than 100% higher than the HV20&#8482. The divergence really opened up as the stock price started collapsing in the beginning of August (ish). Earnings due out today has pushed the divergence further, as expected.

    <b>Trades to Analyze</b>
    For just a "bet", a naked call purchase small could be worth some "gambler's" money. An Oct 12.5 call purchase against a Sep 14 call sale paying $0.80 is ok as well, though that gets long super elevated vega. For you vol sellers out there (eh hem), maybe wait for the earnings report, see if the implied stays elevated relative to the historical, (my guess is it does, though it's possible Oct vol drops 50% in a day, I doubt it) then get your short vega without risking an earnings move.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:

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