HSY - Selling Elevated Vol

Discussion in 'Options' started by livevol_ophir, Aug 23, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    HSY is trading $47.71, up small with IV30&#8482 down 11.1%.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/THK9QM60duI/AAAAAAAAER8/OSMGv6EE68M/s1600/hsy_summary.gif">

    Mike Bristow of Vtrader Group gave me the color on the large sale.

    The company has traded over 13,000 options on total daily average option volume of just 3,531. Puts have traded almost 3:1 to calls. The largest trade was 7,500 Sep 46 puts sold @ $0.50 (over 8,700 have traded in total) outright (no stock). The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/hsy.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/08/hsy.html">in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size).

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/hsy.html">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.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/THK9Rc7IdsI/AAAAAAAAESc/HQsg3nCbqp4/s1600/hsy_charts.gif" width ="500">

    Note how high the IV30&#8482 has spiked past the HV20&#8482. This trade sells 23 vol against an HV20&#8482 of 14, HV10&#8482 of 13 and longer term HV180&#8482 of 21. We can also see that before today, IV30&#8482 reached as high as 26.3, it's down a full 3+ points today.

    I like selling this vol (note the dividend, fyi). I want to sell it twice and buy a put above it to keep some short deltas... I'm a bear, deal with it :).

    <b>Trade to Analyze</b>
    Buy 1 HSY Sep 47 put for $0.79
    Sell 2 HSY Sep 46 puts @ $0.46
    Collect $0.13; naked short the downside below $45. For margin worries, I could buy the Sep 43 puts for $0.12.

    Disclosure: I did the above trade without the 43 puts.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts here:
    http://livevol.blogspot.com/2010/08/hsy.html

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