MTB - Low Vol into Earnings

Discussion in 'Options' started by livevol_ophir, Oct 8, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    MTB is trading $77.18, up 0.4% with IV30™ down 7.9%. The <a href="">LIVEVOL™ Pro Summary</a> is below.

    <img src="" />

    <a href=""><img src="" height="200"></a>

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

    <b>Custom Scan Details</b>
    Stock Price &gt;= $7
    IV30™ - HV20™ &amp;lt;= -8 &gt;= -40
    HV180™ - IV30™ &gt;=7
    Average Option Volume &gt;= 1,200
    Industry != Bio-tech
    Days After Earnings &gt;= 32

    The snapshot of the scan is included (<a href="">in the article
    </a>) in case you want to build it yourself in Livevol Pro™.

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

    The goal with this scan is to identify short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

    Looking to the MTB Skew Tab (<a href="">in the article </a>) we can see that Oct (red) is above Nov(yellow) and Nov has an earnings cycle (a vol event).

    The MTB 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). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    We can see:
    IV30™: ~29.22
    HV20™: 41.45
    HV180™: 37

    So, IV30™ is depressed relative to the short term and long term realized movement of the stock. Last earnings cycle MTB front month vol got as high as 40.87 the day before and two cycles before vol rose to over 34.

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

    <b>Possible Trades to Analyze</b>
    1. This was a scan to find vol to purchase so, buying the Nov75/80 strangle for $4.10 is a naked vol purchase trade.

    2. #1 with a sale of the elevated vol in Oct drops the total debit by ~$0.90 but does risk MTB moving outside of the 75/80 strikes in the next week.

    3. #2 looks even better if it works out, then selling the 70/85 strangle in Nov after Oct expo in terms of lessening the total debit.

    4. Combining the above with offset strikes and perhaps doing some ratios also lead to some interesting PnL bets.

    This is trade analysis, not a recommendation.

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

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