SWC - Bullish Orderflow/Vol Neutral into Earnings

Discussion in 'Options' started by livevol_ophir, Jul 15, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    SWC is trading $12.95, up 3.4% with IV30&#8482 up 6.0%.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TD9P6JCbw_I/AAAAAAAADjI/T8IusKPvf7s/s1600/swc_summary.gif">

    Stillwater Mining Company, incorporated in 1992, is engaged in the development, extraction, processing, refining and marketing of palladium, platinum and associated metals (platinum group metals (PGMs)) from a geological formation in south central Montana known as the J-M Reef and from the recycling of spent catalytic converters.

    The company has traded over 12,000 options on total daily average option volume of just 3,330. The largest trades are Aug 14, 15 call purchases and Oct 11, Jan '11 10 put sales. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/07/swc.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/07/swc.html">in the article</a>) illustrates that the calls are mostly opening (compare OI to trade size) as are the Oct 11 puts (short). The Jan '11 10 puts are sales today and they are on short open interest as best I can tell. You can also see that Aug vol is elevated into earnings in that cycle (a vol event).

    All of the large trade volume gets long delta in SWC. The put sales obviously sell vol, and the call purchases buy it. It is interesting to note that the call purchases buy elevated earnings vol.

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

    We can see the kink in the upside skew in August from the order flow right on the 15 strike. If you like these trades an Aug 14/15 call spread might be in order for ~$0.30. It's a limited trade in that the max gain is $0.70 after debit, but the max loss is only $0.30. Keep in mind though, the stock must go above $14.30 to profit at expiration. The 14 strike is the lowest vol in August and the 15 strike is the highest of the upside calls, so it's a nice skew play albeit very stock price restrictive.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/07/swc.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.

    Note how the IV30&#8482 is bending upward past the HV20&#8482 while the stock has been pretty range bound.

    This is trade analysis, not a recommendation.

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