NWL - Reverse Skew on Takeover Rumor

Discussion in 'Trading' started by livevol_ophir, Jan 19, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    NWL is trading 15.35. Note the IV30™ 16% increase.

    The company has traded over 14,500 options today in the first hour on total daily average option volume of 1,594. Further, 14,200 have been calls for a 42:1 call:put ratio.

    The calls that are trading are: Mar 17.5, Feb 15, Feb 17.5, Jun 17.5 and Mar 15 in descending volume order. The Mar 17.5 have traded 9000+ times on less than 1000 OI (open interest) - those are opening orders. Almost all of the call volume has been purchases. The day's biggest trades and Options Tab snapshots are included in the article.

    Note the IV's in Feb and March.
    Feb 15 (atm): 35
    Feb 17.5: 40

    Mar 15 (atm): 37.
    Mar 17.5: 39.

    This is a classic reverse skew when one line in particular is bid up. For a thorough discussion of reverse skew you can look to this prior blog picked up by Bloomberg: http://livevol.blogspot.com/2010/01/solarfun-solf-call-purchases-with.html

    The simplistic March skew for just three strikes is included in the article. Note now that upside and downside are creating a smile (rather than a smirk).

    The NWL Charts Tab snapshot is included for reference.

    You can read details, trades, charts, prices and vols here: