ODFL - Strangle Buyer

Discussion in 'Trading' started by livevol_ophir, Dec 23, 2009.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    The company averages 233 option contracts a day - today over 4,300 have traded. You can see not just the increased volume, but that the ratio of calls to puts is 1:1. You can also see that the Net Premium is positive indicating option buyers.

    Essentially all of the volume has been the 2000 of the Jan 30/35 strangle (purchases). The OI demonstrates that the calls are all opening and the puts are at the very least, somewhat opening (compare OI to trade volume).

    The stock rose sharply a few days ago (from ~$29 to $33). This big move increased the HV10 substantially. The IV30 has increased slightly, but has not reached the vol level of the underlying (very short time).

    Ultimately this is a 2000 x 100 x ($0.75 + $0.90) = $330,000 bet that the stock trades above 36.65 or below 28.35 by Jan. expo. Alternatively, it is long vega. Specifically [2,000($0.024) + 2,000($0.031)]*100 = $11,000 of vega.

    This means in the near term, this bet wins $11,000 for each vol point increase (alternatively it loses $11,000 for each vol point decrease). With HV10 at 58 and IV30 at 50 - an immediate 8 point vol increase would yield ~$90,000 (note that vega is not constant nor linear - it is a function (not a number)). This is strictly an approximation, it is by no means highly accurate.

    Either way, someone has laid down a delta neutral bet that vol and stock moves in ODFL in the relative near term.

    You can see details, trade prices, charts and more on my blog:
    http://livevol.blogspot.com/2009/12/old-dominion-odfl.html