NWL - Call Buyers Push Skew

Discussion in 'Options' started by livevol_ophir, Sep 9, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    NWL closed yesterday at $16.16.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TIjd2OJC8fI/AAAAAAAAEo0/lSHsXvoj19M/s1600/nwl_summary.gif">

    The company traded over 8,800 options on total daily average option volume of just 646. All but 111 contracts were calls, yielding a 78:1 call : put ratio. The heaviest volume was in the Sep 17.5 calls, and Oct 16 and 17 calls. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/09/nwl.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/09/nwl.html">in the article</a>) illustrates that the Oct lines were substantially opening interest (compare OI to trade size). The Sep call OI was 1,510 yesterday and has changed to 2,027 today. I believe that interest is long. So 500 of those calls opened. We can also see that Sep vol was up nearly 8 points (~28%) and Oct vol was up 1.1 points (3.4%) from the buying interest. i.e. Stock up and vol up.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/09/nwl.html">in the article</a>) illustrates the vols by strike by month.

    The Oct order flow has pushed the upside skew upward, creating a parabola. The nickel bid in the Oct 20 calls makes the upward swing seem larger than maybe it truly is. The 52 wk range for this stock is just [$13.11, $17.96]. That means in order for any of the bid calls (18,19,20) to be ITM by Oct expo., the stock would need to hit a new year high by third week of Oct.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/09/nwl.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue vs. HV180&#8482 - pink). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    The stock has stayed range bound for a while now. The IV30&#8482 has popped to 34 while the long term HV180&#8482 is just 27 and the shorter term HV20&#8482 is 27. So, Oct vol is elevated relative to realized. We are projecting earnings after Oct expo, so it's not an earnings vol differnce (I think).

    <b>Possible Trades to Analyze</b>
    If you're bullish on this name and want to buy calls, selling either the 18 or 20 calls against it could makes sense. A 20 strike call sale is selling 45 vol, but then again, it's a baby call. Paying $0.75 or less in the Oct 16/19 call spread buys 33 (ish) vol and sells 40 (ish) vol. Other than that, naked vol sales may also be up here.

    This is trade analysis, not a recommendation.

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

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  2. jr07


    Can you or someone else explain to me why the Jan' 2011 Calls of NWL lost 57% of their value today? 20$ Strike Price.
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Prob just vol. I haven't looked at it, soI'm just taking your question as is....