MFE - Delta Bets on Impending Earnings

Discussion in 'Options' started by livevol_ophir, Jul 23, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    MFE is trading $31.62 this morning, with IV30™ 1.4%.

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    Yesterday the company traded over 8,000 options on total daily average option volume of just 1,688. The action was mostly in the August options with earnings coming up in a week. 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 all the options are opening. The trades look one sided to the delta. The Aug 30, 31 calls were sold and the Aug 31 puts were bought for more volume than the calls combined. These trades are positioning for earnings as best I can tell. Last earnings release was a total debacle for MFE; the stock closed the day before at $39.53 and opened the next morning at $34.62. The earnings cycle prior, the stock gapped up a couple dollars.

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

    The skew looks pretty normal - the kink in the super down side is just a tight offer probably, nothing to get excited about. I do note a slight upside bend in Aug.

    Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    You can see the IV30™ is trading above the HV20™ and this is before a probable vol push up into earnings. I've highlighted the earnings collapse in stock price from last time.

    In terms of a trade, if the front month vol gets above 55, it could be sale. With the vol here (37 ish), maybe some spreads could do well if you have a directional bias. I am not a big seller of the straddle at these vols, but it should rise into earnings, so keep an eye on it.

    This is trade analysis, not a recommendation.

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