KRE (Regional Banks) - Bets are in on a Market Tumble

Discussion in 'Options' started by livevol_ophir, Aug 25, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    KRE (Regional Banking ETF) is trading $20.98, down 1.6% today with IV30&#8482 spiking up 10.5%.

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    The ETF has traded over 9,700 options on total daily average option volume of just 3,047. The most interesting trade to me is an Oct 21 straddle purchase 1,700x . 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). I've also highlighted the OI in three lines in Dec. A huge Dec 19/23 put spread purchase funded by Dec 26 call sale went up 7-29-2010. The straddle purchase today and put spread purchase in July are both bets on a vol jump and a down move in the ETF.

    The IV30&#8482 was up 5.3% yesterday. Add that to the climb today and we're looking at over 15% short term vol jump in two days. Note that the banking stocks can be very sensitive to market sentiment; particularly negative sentiment.

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

    We can see the ATM vols for Oct (yellow) and Dec (green) lie on top of each other. Sep is just a bit below.

    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.

    Note first how the ETF price has declined of late. The 52 wk. high is $29.79. More impressive is the vol jump of late. Just last week the IV30&#8482 was 33; it's up more than 20% since.

    <b>Possible Trades</b>
    If you're bearish but want to sell the elevated IV30&#8482, a Sep 20/19 1 x 2 put spread for even looks decent. Maybe purchase 1 Sep 17 put for $0.07 if that's cheaper than carrying the margin.

    A little more bearish but more expensive is a Sep 21 put purchase against 2 Sep 19 put sales for a net debit of $0.45. Again, buying a cheap put on the downside may be less expensive than carrying the margin.

    Contrarian trades: Sell straddles.

    This is trade analysis, not a recommendation.

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

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