HTZ - Risk Reversal Trades in Jan on Stock Low

Discussion in 'Options' started by livevol_ophir, Aug 31, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    HTZ is trading $8.57 with IV30&#8482 down 2.0%.

    The company has traded over 12,600 options on total daily average option volume of just 1,652. The largest trade was a Jan'11 7.5/10 risk reversal (sell puts/buy calls). 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 the puts are mostly opening (compare OI to trade size). Note also that Sep, and Oct vol are down, Dec is unched while Jan'11, Mar'11 and Jan'12 are up.

    <img src="">

    Note also the gigantic OI in the Sep 10 line (~25000 in calls and 13,000 in puts). It looks like the calls are long and puts are short but I'm not sure. If that's the case, that OI is the same as the order flow today.

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

    I've isolated the Jan'11 skew and highlighted the strikes that traded. The selling interest in the outs has pushed the vol in that line down a bit creating a little kink. The 10 strike seems unaffected but the 11 strike has kinked up.

    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 (IV120&#8482 - green vs HV120&#8482 - purple). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    We can see the 120 day vol divergence between IV and HV (64 vs 56). Also in the yellow shaded area we can see the shorter term vols diverge even more (IV30&#8482 is 64 vs HV20&#8482 of 38).

    The 52 wk range for HTZ is [$8.41, $15.60] so it's on the cusp here. A tiny trade could be a Sep 9/10 call spread purchase for $0.20. If you can get that price it's a 4:1 maxGain:MaxLoss payout, which means the odds are pretty bad (keep that in mind). A Sep 9 straddle sale $0.70 over (i.e. $1.10 against $8.60 stock) is a straight vol play - though risky.

    If you like the chart and think HTZ will bounce, the risk reversal for $0.05 or less looks decent too (i.e. the order flow).

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

    This is trade analysis, not a recommendation.

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