MAR - One-Sided Trades into Earnings Push Vol

Discussion in 'Options' started by livevol_ophir, Oct 5, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    MAR is trading $37.40, up 1.9% today with IV30™ down 3.8% after the stock was up more than a percent yesterday and IV30™ jumped 6.5%. Earnings are tomorrow AMC.

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    Yesterday the Oct 38 calls traded more than 8,000x on total daily average call volume of just 1,481. The trades were substantially buying interest, pushing the IV30™ up over 6%. The Options Tab and Summary from yesterday are included (<a href="">in the article</a>). For Livevol Pro™ users, I got these snaps from the Charts Tab, feel free to email with any questions on that - this data is available with the click of a button for 2 years of history in LVP.

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    MAR earnings vol has been relatively fair valued in that there hasn't been a strong pattern one way or the another in terms of buying or selling the ATM straddle one day before earnings and then closing the next day. I 've included the results of selling the straddle then buying it back after earnings for a one trade trade for the last quarters (<a href="">in the article</a>).

    It's the far right column that shows the results. Last cycle the straddle literally didn't change in value, the cycle before the sale was a nice winner. However, the two cycles prior to that the straddle was a purchase (moved more than implied vol), then it was a sale twice and then a purchase again.

    The call buying yesterday may be a delta bet or it could be straight vol, as the buyer may have sold stock against the calls to turn them into puts or straddles. Let's look to the Charts Tab (6 months) (<a href="">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 MAR is near an annual high as it climbs into earnings tomorrow. The 52 wk. range is [$24.47, $38.15]. Finally, let's now look to the Options Tab today (<a href="">in the article</a>).

    <b>Possible Trades to Analyze</b>
    I don't so any screaming good trades right now, but here are few ways to play earnings:

    1. Buy the Oct 38 calls like the order flow.

    2. Buy the Oct 37/38 strangle for $1.55.

    3. Do #2 above, but also sell the Oct 35/40 strangle @ $0.45 netting a net debit of $1.15. Of all the trades, I like this type the best, naked purchases are a bit too risky for earnings vol for me.

    4. Alternatively, go opposite the order flow, sell some vol in straddles or strangles. Risky of course, especially in the face of vol buying.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts here:

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