MON - Elevated Vol, Choppy Stock

Discussion in 'Options' started by livevol_ophir, Oct 27, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    MON is trading $59.73, up 1.3% with IV30™ up 13.9% The <a href="">LIVEVOL™ Pro Summary</a> is <a href="">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 &lt;= $70
    IV30™ - HV20™ &gt;= 10
    HV180™ - IV30™ &lt;= -8
    Average Option Volume &gt;= 1,200
    Industry != Bio-tech
    Days After Earnings &gt;=10 &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 MON Charts Tab is included (<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).

    <img src="" width="600" />

    We can see:
    IV30™: 59.73
    HV20™: 29.91
    HV180™: 33.0

    So, IV30™ is elevated relative to the short term and long term realized movement of the stock. Look at the stock chart, we can see that on 9-28-2010, MON gapped down nearly $5 on this news from AP:
    "A Jefferies analyst said the yield of the agribusiness company's genetically modified corn seed has so far been weaker than expected."

    This pushed the HV20™ above 49 at one point, but now enough trading days have passed where that move has rolled out of the average. Note that HV30™ is still 41.

    Today there was an apparently positive report that the global seed business looks good going out a few years, stock has rallied a bit and vol is up a lot... Tricky... When it's all said and done, MON is now higher buy ~$4 than it was the day before the gap down.

    Let's look to the Options Tab (<a href="">in the article</a>).

    <b>Possible Trades to Analyze</b>
    1. Sell the 60 straddle @$5.00 or ~41.5 vol. Ah, selling options feels so good... I mean, you know, when it works...

    2. Pick a side of that straddle to "defend." Buying the Nov 57.5 put for $1.50 still leaves a net cedit of $3.50, so there is no downside risk. It's a winner below $60 at all prices. The upside though, has risk and loses naked above $63.50. To "defend" the upside, it's a bit more tricky. Only a 67.5 call exists. Fair value at 41 vol is ~ $0.40, maybe a $0.50 bid gets hit. That would leave a $4.50 credit, so the trade does lose above $64.50, but stops out at $67.5. The downside in this case would be naked.

    3. Do a Nov 55/57.5 1x2 put spread and receive ~$0.02 to cover commissions. This is naked downside below $55, but maybe that's ok?... If MON decides to fall back down below $57.5 (but above $55), this can be a fancy little winner for a credit to enter the position (excluding margin).

    This is trade analysis, not a recommendation.

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