SNI - Put Buyers on Elevated Vol Yield Good Trade Conditions

SNI closed $42.52 yesterday, up small.

<img src="http://2.bp.blogspot.com/_hMry1m7UF10/TGvalMcs4aI/AAAAAAAAEKU/lvI4cV8hfGg/s1600/sni_summary.gif">

SNI is a lifestyle content and interactive services company with television and interactive brands (Home and Garden Television (HGTV), Food Network, Travel Channel, DIY Network (DIY), Fine Living Network (FLN), Great American Country (GAC)).

The company traded over 5,900 options on total daily average option volume of just 322. Every option was a put (zero calls). 5,700+ of the puts traded in Dec on the 34 and 40 lines (purchases). The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/08/sni.html">in the article</a>).

The Options Tab (<a href="http://livevol.blogspot.com/2010/08/sni.html">in the article</a>) illustrates that the Dec puts are mostly opening (compare OI to trade size). You can also see that Dec vol is above Aug and Sep (top of the Tab). Earnings are projected for early Nov.

Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/08/sni.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV90&#8482 - green vs HV90 &#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV30&#8482 vol difference.

We can see the IV90&#8482 is well above the HV90&#8482 (35 vs. 29). With the put buying yesterday, the IV90&#8482 jumped 2 points or 6%. I've highlighted in the stock chart the substantial drop in price off the last earnings report. The 52 wk range for SNI is [$24.03,$42.90].

With liquidity on the bid side in the Dec 35 puts, I like taking the other side at that vol (i.e. selling it). I also like following the order flow in this case, given how one sided it is.

<b>Trade to Analyze</b>
Buy 1 Dec 40 put for $2.40
Sell 2 Dec 35 puts @ $1.20
Net debit is $0.00.

I even like buying one of the Dec puts for $0.40 or paying a net $0.40 for a $5 butterfly. Reduces margin and risk, though it creates a debit. Maybe doing the spread 1 x2 x 0.5 is good enough; paying $0.20.

This is trade analysis, not a recommendation.

Details, trades, prices, vols, skews, charts here:
http://livevol.blogspot.com/2010/08/sni.html

 

Sorry, the end should read:

I even like buying one of the Dec <b><u>30</b></u> puts for $0.40 or paying a net $0.40 for a $5 butterfly.