HTZ - Elevated Vol with Earnings Calendar Could be a Trade

Discussion in 'Options' started by livevol_ophir, Sep 27, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    HTZ is trading $11.21 with IV30™ up 10.9%.

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    I mentioned this stock a few times in the last month. You can read the prior posts here:

    <b><a href="">UPDATE: Hertz (HTZ) - Jan Call Interest, Spiking Vol, Stock Near Annual Low</a></b>
    <b><a href="">Hertz (HTZ) - Risk Reversal Trades in Jan on Stock Yearly Low</a></b>

    Today I see a possible trade given the exploding vol in Oct and earnings in Nov. Let's first look to the Skew Tab (<a href="">in the article</a>).

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    We can see that Oct (red) is well above Nov (yellow). The last earnings cycle for HTZ was 8-3-2010. Since Oct expo is 10-15-2010, it's a reasonable bet that earnings will be after Oct. and in Nov. Hmmm...

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    The last earnings cycle had HTZ front month ATM straddle vol at 76 on it's peak right before earnings. The Livevol Pro Earnings &amp; Dividends Tab, an isolated snap, is included (<a href="">in the article</a>). Red is the front month vol, blue the back.

    Let's turn to the Charts tab, now, 6 month vol chart (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    We can clearly see where I've highlighted the IV30™ explosion today. As of this writing, IV30™ is 65 against HV20™ of 51 and HV180™ of 54. In other words, short term implied is substantially above short term realized and long term realized. This feels like a vol sale... But...

    Let's finally turn to the Options Tab (<a href="">in the article</a>).

    Note the vol difference between Oct and Nov. While Oct IV is 71, Nov IV is just 61. That's a 10 point vol diff while earnings (a vol event) are likely in Nov.

    <b>Possible Trades to Analyze</b>
    Sell the elevated Oct vol in the Oct 11 straddle @ $1.35 or 71 vol. Buy the depressed Nov 11 straddle for $2.15 or 62 vol for a net debit of $0.80 while gaining the benefit of the earnings vol. If HTZ sits here, and Nov vol goes from 62 to 76 (last earnings IV level), this could be a nice vol scalp selling out right before earnings.

    Other possibilities are naked selling of Oct, "hoping" for steady stock behavior, then rolling that premium win into a purchase of Nov if it's still depressed and talking an earnings vol ride (or just take the premium win). Given the takeover happy world right now, I am more hesitant than I've been for a long time to be naked any upside. An Oct 11 straddle with a 12 strike call purchase could be wise if not doing the entire time spread.

    Keep in mind, calendar spreads lose to takeovers if you're long the back (vega).

    This is trade analysis, not a recommendation.

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

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