PVH - Straddle Seller

Discussion in 'Trading' started by livevol_ophir, Jan 12, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    The company has traded over 6,6000 options today in the first hour on total daily average option volume of 388.

    Almost all of the volume has been a Feb 45 straddle seller @ ~$3.00.
    The OI (open interest) on the Feb ATMs is well below the trade volume. These are opening positions. The Vol chart comparing IV30&#8482 to HV10&#8482 and HV20&#8482 illustrates the divergence. Notice the IV30&#8482 is down over 10% today significantly lessening the divergence with historical vol. The underlying chart illustrates in fact that the stock has traded in a tight range for several months.

    Yesterday (1/11) PVH raised Q4 '09 guidance. Today, Citigroup added PVH to its Top Picks Live list. Note also that earnings are in late March - the Feb options do not include that volatility event.

    Ultimately the short straddle bets on lower vol and at expo simply bets the stock goes to $45 with a PnL positive range for stock between $42 - $48. With the stock almost to $44, this is a slightly bullish bet while also betting on lowering vol. The bet is consistent with the recent news.

    You can see details, prices, charts and trades on my blog:
    http://livevol.blogspot.com/2010/01/phillips-van-heusen-pvh-feb-straddle.html