RIG - Buying Depressed 60-day Vol

Discussion in 'Options' started by livevol_ophir, Sep 24, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    RIG is trading $59.98, up 0.9% with IV30™ down 2.7%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/TJzn9cnWdQI/AAAAAAAAE-w/ECo6PevNnec/s1600/rig_summary.gif">

    I found this company using a custom real-time scan on Livevol Pro™ searching for low vol 60 days out.

    <b>Custom Scan Details</b>
    Stock Price &gt;= $10
    IV60™ &gt;= 1
    Industry != Bio-tech
    Average Option Volume &gt;= 1000
    IV60™ - HV60™ &lt;= -8 &gt;= -40

    Let's take a look at the Charts Tab (<A href="http://livevol.blogspot.com/2010/09/rig.html">in the article</a>). The vol chart only: (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TJzn84XOW7I/AAAAAAAAE-s/xvWu_cr7les/s1600/rig_charts.gif">

    We can see IV60™ is 39, while HV60™ and HV180™ are 53. In English, the 60-day implied vol is cheaper than the stock as moved over the last 60 trading days and the last 180 trading days.

    The last earnings cycle for RIG was 8-4-2010. The next is 11-3-2010. That means the Nov options not only have low vol, but they have an embedded volatility event (earnings). Let's look to the Options Tab (<A href="http://livevol.blogspot.com/2010/09/rig.html">in the article</a>).

    <b>Possible Trades to Analyze</b>
    1) Buying the Nov vol naked - Purchase the Nov 60 straddlefor $7.20 or 38 vol is one approach, though risky.

    2) Buy the Nov ATM straddle but sell the Nov 52.5/70 strangle @ $1.75 for a total debit of $5.45. That sells 44 vol in the OTM puts and 34 vol in the OTM calls.

    3) A little more tricky is to sell the Oct 52.5 puts to reduce the debit by $0.25. Then, assuming the stock isn't below $52.5, you could do trade #2.

    4) Finally, risky but more interesting could be to do #3, but sell 2 of the Oct puts and of the Nov puts after. Or selling the Nov 50 put with the Nov 52.5.

    Details, trades, prices, vols, charts here:
    http://livevol.blogspot.com/2010/09/rig.html

    This is trade analysis, not a recommendation.

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