IP - Vol up, Stock Range Bound

Discussion in 'Options' started by livevol_ophir, Oct 12, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    IP is trading $22.48, up 0.4% with IV30™ up 13.1%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/10/ip.html">in the article</a>.

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    The company has traded 31,000 options on total daily average option volume of just 7,252. Oct 23 calls have traded 14,700x, the Nov 24 and 26 calls have each traded ~ 3,000x. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/10/ip.html">in the article</a>).

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    The Options Tab (<a href="http://livevol.blogspot.com/2010/10/ip.html">in the article</a>) illustrates that the calls are mostly opening (compare OI to trade size) in both months. The Oct 23 calls look like sales, or maybe two-sided, tough to tell as they went up on ISE. Nov 24 calls feel like purchases, and Nov 26 feel like sales. Regardless, vol is up 13 points in Oct and 5 points in Nov.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/10/ip.html">in the article</a>) illustrates the vols by strike by month.

    The front month is parabolic as can happen near expo. The Upside is definitely bid. The back months are more "normal. Nov is elevated to the other months (other than Oct) due to an earnings cycle (projected).

    Finally, the Charts Tab (6 months) is <a href="http://livevol.blogspot.com/2010/10/ip.html">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 see the stock has been in a tight range for the last month (ish). As of today, IV30™ has climbed past the short-term realized (HV20™) and long-term realized (HV180™).

    <b>Possible Trades to Analyze</b>
    1. Selling the Oct 22/23 strangle and buying the Nov strangle for a total debit of $1.75 is risky but reasonable. That requires IP to stay in a pretty tight range for the next three and a half trading days, but looks tasty on the other side if it works with an earnings cycle coming and vol rising.

    2. Buying the Nov 22 straddle for $2.70 (46.5 vol) and selling the Oct 21/24 strangle @ $0.15 yields a bit of a discount to the purchase, but then again, sells dime options which isn't for everyone.

    3. A Nov 19/20 1 x 2 put spread (buy 1 Nov 20 put and sell 2 Nov 19 puts) yields a $0.06 credit and is safe down to $19... Beware of earnings, though.

    4. Sell Nov vol, bet that the stock stays range bound, the options decay and maybe a purchase back ahead of earnings, or just play short vol into earnings... risky... I actually show that IP is more prone to moving more than the implied vol indicates, so a front spread doesn't feel like the right play here.

    This is trade analysis, not a recommendation.

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    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/10/ip.html">http://livevol.blogspot.com/2010/10/ip.html</a>

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