MHP (S&P) - Puts, Vol and the Oracle

Discussion in 'Options' started by livevol_ophir, May 4, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    MHP is trading 32.64, down $1.15 with IV30&#8482 up 20.4%.

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    The company has traded over 4,800 options in the first hour on total daily average option volume of just 595. All but 287 contracts have been puts for a 16:1 put:call ratio. The largest trades have been put purchases in the back months. 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 a bunch of stuff.

    1) Aug 30 puts are most active - from what I can tell that OI is long as well, so this is a "double" down.
    2) The OTM puts in Jan '11 are trading (purchases). I believe (but not sure) that exisitng OI in Jan '11 25 puts is also long. I can't tell in the Jan '11 30 puts.
    3) The Nov 25 and 30 puts are also trading in Nov - purchases on low open interest - these are opening bets.
    4) MHP probably has earnings in the Aug cycle - note the vol at the top. It's lower in August than May. Although earnings are a known vol event, the summer is generally very slow and vol tends to bottom in August. Interesting...

    The Skew Tab snap is included (<a href="">in the article</a>).

    You can see the shape in general is pretty normal on the downside - a bit under stated on the upside (i.e. there is usually a flattening out to the upside - that isn't the case here). To read why skew exists and how it forms you can <a href="">go here</a>.

    You can also see the front month (red) is above the earnings month (green).

    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.

    MHP has sputtered over the last few weeks, dropping more than 10% as IV30&#8482 rises. The rating agencies are on the hook and have been for a while - but they always seem to skate free. They even got a nice little comment from the Oracle of Omaha himself, Mr. Warren Buffet calling them and other rating agencies: "incredibly wonderful businesses." <a href="">Reference</a>.

    Maybe the tide will turn - the gov't will actually follow through on GS and then the agencies... or not...

    If you're in the "not" camp - calls are relatively cheap to puts (see skew tab), and especially in the earnings month (which has low vol relative to May). If you're in the "tide will turn" camp - spreading the earings month may be a play.

    This is trade analysis, not a recommendation.

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