PCX - Low Vol May Yield Trade

Discussion in 'Options' started by livevol_ophir, Dec 1, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    PCX is trading $16.81, up 3.9% with IV30™ down 5.4%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/12/pcx.html">in the article</a>.

    <img src="http://www.livevolpro.com/help/images/blog/pcx_summary.gif" />

    PCX is a producer of coal in the eastern United States, with operations and coal reserves in Appalachia and the Illinois Basin. It is also a producer of metallurgical coal.

    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™ &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="http://livevol.blogspot.com/2010/12/pcx.html">in the article</a>) in case you want to build it yourself in Livevol Pro™.

    <img src="http://www.livevolpro.com/help/images/blog/low_vol_scan.gif" 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.

    The PCX Charts Tab is included (<a href="http://livevol.blogspot.com/2010/12/pcx.html">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.

    <img src="http://www.livevolpro.com/help/images/blog/pcx_vol_chart.gif" width="600" />

    We can see:
    IV30™: ~56.67
    HV20™: 66.26
    HV180™: 65.55

    So, IV30™ is depressed relative to the short term and long term realized movement of the stock.

    Finally, let's look to the Options Tab (<a href="http://livevol.blogspot.com/2010/12/pcx.html">in the article</a>).

    <b>Possible Trades to Analyze</b>
    1. Buy the Dec 17 straddle for $1.59.

    2. Buy the Dec 16/17 strangle for $1.16.

    3. Ok, more creative than naked long options:
    Buy the Dec 16/17 strangle for $1.16
    Sell the Dec 14/19 strangle @ $0.25

    4. Risk lovers:
    #3 but sell the Jan 12.5 puts @ $0.20... Or do those twice... Oo...

    PCX 52 wk range is [$9.76, $24.25], which is pretty freakin' wide.

    This is trade analysis, not a recommendation.

    <b>Follow Live Trades and Order Flow on Twitter: @Livevol_Pro</b>

    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/12/pcx.html">http://livevol.blogspot.com/2010/12/pcx.html</a>

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