ITRI - Strangle Buyer on Earnings Pattern Anticpation

Discussion in 'Options' started by livevol_ophir, Jul 20, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ITRI closed at $62.69.

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    The company traded over 8,000 options yesterday on total daily average option volume of just 863. Most of the action was in August, specifically the Aug 55 put purchases and Aug 70 call purchases (I think the calls were purchases). 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). You can also see that Aug vol is elevated because earnings are due out in a week.

    The last two earnings cycles ITRI has gapped on earnings news and made the one day ATM straddle in the front month a purchase. The last two earnings cycles and corresponding stock move are included (<a href="">in the article</a>).

    The top row is the stock price five trading days before earnings through five trading days after. The bottom row are the front two month ATM straddle values for the same time horizon. I've highlighted how the straddle has moved. This strangle seems to be betting on that movement and has purchased the options before the vol makes it's big move up into earnings.

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

    As of right now, the skew looks nice and normal; slightly more pronounced in August than the other months b/c of earnings.

    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 (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.

    You can see again how the stock has gapped on the last two earnings and how IV is ripping past HV of late, perhaps in anticipation of a similar occurrence. I actually don't love this trade; but maybe a long straddle makes sense with some short wings to make it cheaper if you want to play this earnings mover. Of course, the contrarian play may also be good here - vol is spiking pretty hard; maybe the straddle is a sale right before earnings now.

    This is trade analysis, not a recommendation.

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