IGT - Sep Vol Seller on Odd Stock Behavior

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

  1. livevol_ophir

    livevol_ophir ET Sponsor

    IGT is trading $15.10, with IV30&#8482 down 6.6%.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/THgF1p6hr7I/AAAAAAAAEZE/HLAyZM7ftWs/s1600/igt_summary.gif">

    The company has traded over 25,500 options on total daily average option volume of just 1,870. Essentially all of the volume came from a sale of 12,500 Sep 15 straddles @ $0.90 (25,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (<A href="http://livevol.blogspot.com/2010/08/igt.html">in the article</a>).

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

    This a vol sale (duh). At expo it wins if IGT stock is in ($14.10,$15.90). Before expo, this trade is short $17,500/vol of vega. So each vol point move makes a $17,500 difference in PnL. Note that vega is a function, not a constant, so it changes.

    The Skew Tab snap (<A href="http://livevol.blogspot.com/2010/08/igt.html">in the article</a>) illustrates the vols by strike by month.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/THgF27pv-vI/AAAAAAAAEZk/TJ4zvrdZD1c/s1600/igt_skew_8-27-2010.gif">

    Note how clearly we can see that the Sep vol is below the other two months (red curve is below the yellow and green curves).

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

    Note two things. First, look how the stock has literally stuck at the $15 level for the last month - pretty weird given the market's choppiness. Second, look at how this has affected the HV20&#8482 ; it has collapsed. This is a bet that IGT plays the same "stuck in the mud" game for another few weeks.

    This is trade analysis, not a recommendation.

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

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