RRC - Aug Options Trade; Skew Bends

Discussion in 'Options' started by livevol_ophir, Jul 28, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    RRC is trading $38.31, up 2.9% with IV30&#8482 13.3%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/TFBp0cpDUDI/AAAAAAAADz4/tJckC_5c_jA/s1600/rrc_summary.gif">

    Mike Bristow, head broker for Vtrader Group, got my attention on this one.

    The company has traded over 41,000 options on total daily average option volume of just 4,207. The action is fast and furious in the Aug options. A 35/37.5 strangle sale (from what I can tell), 14,000+ Aug 40 calls and nearly 7,000 41 and 42.5 upside calls (combined volume). The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/07/rrc.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/07/rrc.html">in the article</a>) illustrates that the strangle sale is opening (compare OI to trade size). The Aug 40's are opening as well. The Aug 41 and 42.5 are ambiguous.

    The Aug upside look like sales on the 41 and 42.5 sales. The Aug 40 calls look like purchases for size. The skew is bent severely up from this order flow. The Aug 35 line is bent down b/c of the strangle sale. In total it leaves a great skew for hunting.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/07/rrc.html">in the article</a>) illustrates the vols by strike by month.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/07/rrc.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    We can see the hard stock drop of late and the gap down from earnings yesterday of ~$3. The IV30&#8482 has now jumped past the HV20&#8482.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here: