LPS - Elevated Vol; Two Week Trade

Discussion in 'Options' started by livevol_ophir, Nov 9, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    LPS is trading $30.75, with IV30™ down 4.0%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/lps.html">in the article</a>.

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    I found this stock using a real-time custom scan. This one hunts for high vols.

    <b>Custom Scan Details</b>
    Stock Price &gt;=$7 and &lt;= $70
    IV30™ - HV20™ &gt;= 10
    HV180™ - IV30™ &lt;= -8
    Average Option Volume &gt;= 1,200
    Industry != Bio-tech
    Days After Earnings &gt;=10 and &lt;=60

    The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

    The LPS Charts Tab is included (<a href="http://livevol.blogspot.com/2010/11/lps.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).

    We can see:
    IV30™: ~48.03
    HV20™: 37.48
    HV180™: 33.06

    So, IV30™ is elevated relative to the short term and long term realized movement of the stock.

    Let's look to the Options Tab (<a href="http://livevol.blogspot.com/2010/11/lps.html">in the article</a>).

    Unfortunately there isn't a lot of liquidity here - the markets are wide, though OI is large enough that there is some trading. The company averages 1,291 contracts traded a day, so just above my filter.

    <b>Possible Trades to Analyze</b>
    1. Sell the ATM straddle @ $2.00 naked, very risky.

    2. Do #1 above, but buy the Nov 25/35 strangle for $0.35, yielding a net credit of $1.65.

    3. Go one sided, sell just a call or a put.

    4. Do #3, but cover it up with the OTM option (so sell a call spread or sell a put spread.)

    One note here, I think if you like this vol to sell, don't reach for the prices. If you can't get a reasonable fill, skip the trade in my opinion.&nbsp;

    And a final note, check out the stock movement as it dipped from ~ $34 down to ~$26, and now has climbed back up - there is reason for elevated vol, the question is, will the stock stick for two weeks?

    This is trade analysis, not a recommendation.

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    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/11/lps.html">http://livevol.blogspot.com/2010/11/lps.html</a>

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