SPWRA - Low Vol and Uneven Skew May be Purchase

Discussion in 'Options' started by livevol_ophir, Sep 20, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    SPWRA is trading $12.39, up 3.0% with IV30&#8482 up 3.0% as well.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TJeecwsYKeI/AAAAAAAAE3c/H5Lgz1YH1CI/s1600/spwra_summary.gif">

    SPWRA is a vertically integrated solar products and services company that designs, manufactures and markets high-performance solar electric power technologies.

    I found this stock from my low vol real-time custom scan. You can read about the details of the scan here: <b><a href="http://livevol.blogspot.com/2010/09/netl.html">Custom Scan: Finding Low Vol to Purchase</a></b>

    The company has traded over 11,000 options on total daily average option volume of just 4,259. All but 251 contracts have been calls yielding a 46:1 call : put ratio. The action has been in the Oct 14 and 15 calls; mostly long interest I believe. The Stats Tab and Day's biggest trades snapshots are included (<A href="http://livevol.blogspot.com/2010/09/spwra.html">in the article</a>).

    Let's look to the Charts Tab before looking at prices. The 6 month vol chart (IV30&#8482 - red vs HV20&#8482 - blue vs HV180&#8482 - pink) is included (<A href="http://livevol.blogspot.com/2010/09/spwra.html">in the article</a>). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/TJeegAQETOI/AAAAAAAAE30/9tPxM8EU6sw/s1600/spwra_charts.gif" width="500">

    We can see the IV30&#8482 is 51 while HV20&#8482 and HV180&#8482 are 62. In other words, the short term and long term realized volatility in the stock has been more than 10 points higher than the current implied. This stock was recently upgraded by two sell side firms giving it a nice little pop at the end of August and shooting the HV20&#8482 up (see blue line pop).

    The Skew Tab snap (<A href="http://livevol.blogspot.com/2010/09/spwra.html">in the article</a>) illustrates the vols by strike by month.

    What's cool here is that not only is the IV30&#8482 low relative to short and long term realized, but the $13 strike is oddly low, pricing a little less than 47 vol. The 14, 15 strikes are then higher because of the order flow.

    Finally, let's look to the Options Tab (<A href="http://livevol.blogspot.com/2010/09/spwra.html">in the article</a>).

    First, we can see that the calls today are opening (volume >> OI). Next we can see some prices.

    <b>Possible Trades to Analyze</b>
    To really jump on a "guess" of low vol, a 13 strike straddle can be purchased for ~$1.37. That would require SPWRA to be outside of the range ($11.63, $14.37) if held to Oct expo in order to be profitable. Selling the Oct 11,14 strangle @ $0.35 brings the net debit down to $1.02. A 12/14 strangle sale brings the debit down to $0.77.

    A more bullish approach could be to buy the Oct 13 calls and sell the Oct 12 puts @ a net credit of ~$0.11. A touch less risky is selling the Oct 11 puts instead, creating a net debit of just ~$0.18.

    This is trade analysis, not a recommendation.

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

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  2. i actually bought the straddle at 13 now look where its at =)
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Awesome! Congrats.