Invesco - Bet on October Collapse

Discussion in 'Options' started by livevol_ophir, May 14, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    IVZ is trading 20.70 with IV30&#8482 up 7.6%.

    <img src="">

    The pattern I have been writing about is the summer sales of vol - especially as the VIX has exploded recently (click a symbol to read: <a href="">MDR</a>, <a href="">MR</a>). This time I'm writing about another trend in options trading - getting long vol in Oct.

    The company has traded over 5,000 options in the first hour on total daily average option volume of just 903. The largest trades have been straddle purchases in Oct. 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 are all opening, and the puts are mostly (if not all) opening (compare open interest to volume). From the largest trades snap above we can see the straddle was purchased for: $2.25 (puts) + $2.85 (calls) = $5.10 on a $20 stock.

    The Skew Tab snap (<a href="">in the article</a>) shows that the Oct ATM straddle is lower than the other months and has an earnings cycle.

    IVZ is a financial (global investment management), so if you think Oct will be rocky (as it can be), then financials tend to react pretty strongly. Buying a straddle in Oct is pretty normal, buying it in a financial is too - what isn't necessarily normal is having Oct be the lowest month when it has an earnings cycle (projected).

    The straddle details:
    Cost: $5.10
    Dollar amount (Max Loss): 1900 *$5.10 * 100 = $969,000
    Break Even Low: $14.90
    Break Even High: $25.10

    IVZ 52 wk. range is: $13.55 - $24.07

    Someone is betting on a big move - in vol and stock price.

    I've omitted the chart this time b/c I don't think it's that helpful to look at the last two Octobers. 2008 was wildly high vol, 2009 was sort of the opposite (muted).

    Option traders are following a trusted pattern: Sell Summer, Buy Fall.

    This is trade analysis, not a recommendation.

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