JNS - Large Sep Bet Makes Sense

Discussion in 'Trading' started by livevol_ophir, Apr 23, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    JNS is trading 14.18 having reported earnings yesterday BMO.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/S9G8O_NKTNI/AAAAAAAAB-c/NvQn1421MYo/s1600/jns_summary.gif">

    After reporting earnings yesterday (4-22-2010, BMO) the stock finished down ~$1 and vol came down 7 points or 18%. The results were sort of blah (and that means something to a trader) - the headline is included:

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/S9G_UnEnlwI/AAAAAAAAB_g/TyFk7l6Lz84/s1600/jns_news-headline.gif">

    The company has traded over 4,200 options in the first two hours today on total daily average option volume of just 254. Almost the entire volume is a single bet in Sep. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/04/jns.html">in the article</a>).

    The Options Tab and prices above (<a href="http://livevol.blogspot.com/2010/04/jns.html">in the article</a>) illustrates the trade in Sep:
    Sell Sep 12.5 puts @ $0.70
    Sell Sep 17.5 calls @ $0.35
    Buy Sep 10 puts for $0.30

    You can look at this a few ways - it's easiest for me to think of as a short strangle with downside protection. Note the option volume is well above the OI on all three lines - this is an opening bet.

    JNS had earnings yesterday, which means the next cyle should be mid-summer (a notoriously slow time for the market) and then after that in Oct. This bet only has to deal with one earnings cycle - and it's a summer cycle.

    The Skew Tab snap is included (<a href="http://livevol.blogspot.com/2010/04/jns.html">in the article</a>). You can see how much higher the Sep vol is relative to the other months b/c it has the earnings cucle.

    This is an interesting bet. It makes money as long as JNS stays below $18.25 and above $11.75 with a limited downside. Max gain is anywhere in [12.5, 17.5] of $105,000 using 1,400 spreads and the prices above.

    Finally, the Charts Tab (1 year) is included (<a href="http://livevol.blogspot.com/2010/04/jns.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.

    The historical stock price movement finishes the story. If the past is relevant to the future - we can see JNS 52 wk. high is $16.06 (far from 1$8.25 or even $17.50) - but it has dipped below $10 (52 wk. low is $8.55).

    So, sell the summer earnings vol (and hope for another "blah" report) which is elevated now, protect the down side based on the stock chart and get out before the potential Oct craziness - that's the bet, and it makes sense.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews here:
  2. Do you ever appear on any option-related, broadcast segments on television? :confused: :cool:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Request me for the FOX Business Network and it might happen. They shoot right next to me on the floor.