ITUB - Big Bet on Brazil Bank Reaching High

Discussion in 'Options' started by livevol_ophir, Jul 21, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ITUB closed at $21.07 yesterday up 2.3%.

    <img src ="http://2.bp.blogspot.com/_hMry1m7UF10/TEbz_MnZ7MI/AAAAAAAADpI/TrHUdAXVW5E/s1600/itub_summary.gif">

    ITUB is a $95 billion market cap bank in Brazil.

    The company traded over 17,000 options yesterday on total daily average option volume of just 2,502. The largest trades occurred in Dec accounting for ~ 16,000 options. The trades were a purchase of a Dec 21/24 call spread and a sale of the Dec 17.5 puts to fund it. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/07/itub.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/07/itub.html">in the article</a>) illustrates that the calls were entirely opening (there was no open interest) and the puts were at least mostly opening (compare OI to trade size). You can also see that Dec vol is above the front two months at the top of the Options Tab in green font.

    <b> Trade Stats </b>
    Buy 3,900 Dec 21 calls for $2.15
    Sell 6,240 Dec 24 calls @ $0.80
    Sell 3900 Dec 17.5 puts @ $0.90
    Total credit = 100 * 3,900 * ($2.15 - $0.90) - 100 * 6,240 * $0.80
    = $11,700

    The PnL chart for the largest trade is included (<a href="http://livevol.blogspot.com/2010/07/itub.html">in the article</a>).

    You can see the trade was constructed carefully to be a credit/zero debit while maxing gain at $24. The 52 wk range for ITUB is [$16.06,$23.95]. The PnL at those levels is:

    PnL ($16.06) = -$549,900
    PnL ($23.95) = $1,162,200

    The Skew Tab snap is great on this one as it (<a href="http://livevol.blogspot.com/2010/07/itub.html">in the article</a>) illustrates the vols by strike by month.

    We can see how the 17.5 line was pushed down from the selling and how the 24 line is the lowest vol in that month as the higher strikes did not bend down as much.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/07/itub.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.

    You can see the panic selling in mid May, followed by a substantial rebound. These trades bet that ITUB reaches it's 52 wk. high by year end.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
    http://livevol.blogspot.com/2010/07/itub.html