Novartis (NVS) - Oct Bearish Trades Dominating Option Order Flow

Discussion in 'Options' started by livevol_ophir, Jul 7, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    NVS is trading $49.19, up 1.1% with IV30&#8482 down 2.9%.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TDS_sYglxlI/AAAAAAAADYw/Kr16vAzLw4A/s1600/nvs_summary.gif">

    The company has traded 22,299 options on total daily average option volume of just 3,314. 22,000 of the contracts went up in a single trade; an Oct 45/55 risk reversal (buy puts/sell calls). The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/07/nvs.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/07/nvs.html">in the article</a>) illustrates that the puts and calls have massive OI already.

    It turns out on 6-24-2010 (i.e. a few weeks ago) the same trade went up 9,190 times, and then again on 6-30-2010 for size. The historical trades snapshot from 6-24 is included (<a href="http://livevol.blogspot.com/2010/07/nvs.html">in the article</a>).

    The 11,000 today are tripling down on the same line. Today the trade cost $0.80; it cost $0.90 on 6-24 and ~ $0.87 on 6-30. The entire OI plus today's trades PnL at Oct expo is included (<a href="http://livevol.blogspot.com/2010/07/nvs.html">in the article</a>) using an average price of $0.85.

    The 52 wk range for the stock is [38.97, 56.42]. The PnL for this position at those levels (assuming no stock hedge) is:
    P(38.97) = $15,540,000
    P(56.42) = -$6,810,000
    Umm, that's size.

    The stock averages 3.5 million shares a day, and today only 1.75 have traded; so it's certainly not obvious if stock traded on those riskies.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/07/nvs.html">in the article</a>) illustrates the vols by strike by month.

    The skew looks pretty normal. Jan '11 looks a bit weird with the upward bend but that's just a nickel bid on the 70 calls.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/07/nvs.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV90&#8482 - red vs HV90&#8482 - blue). The yellow shaded area at the very bottom is the IV90&#8482 vs. the HV90&#8482 vol difference.

    We can see the IV90&#8482 is always above the HV90&#8482 (or has been for 6 months). Long term vol looks like a sale according to that, but of course, the past doesn't predict the future. For what it's worth, the risk reversal does get long a little vol just based on skew. The 30,000 riskies create a vega position of $27,000/vol using today's values (vega).

    The stock dipped pretty hard then bounced off a low and has been in a very small range recently.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
    http://livevol.blogspot.com/2010/07/nvs.html