TEI - Vol Spikes at Open on Takeover Rumors

Discussion in 'Options' started by livevol_ophir, Mar 23, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    TIE is trading 16.06 up nearly 8% with IV30&#8482 up 8.3%.

    The stock shot up at the open as did vol. The Tick Chart is included (in the article). The top is the underlying, the bottom the front month vol (April).

    The recent news from marketwatch.com:
    <a href="http://www.marketwatch.com/story/titanium-metals-stock-adds-to-gains-after-results-2010-03-03?siteid=yhoof">Click Here to read story</a>.

    The rally gathered momentum on Monday (read 3/1/2010), even though the Dallas-based company reported a steep decline in fourth-quarter profit.

    Investors looked past the 86% drop in earnings to focus on what Titanium expects to be a period of recovery and heightened demand from the aerospace industry.

    Specifically, CEO Bobby O'Brien said the upcoming deliveries of the Boeing 787 will raise production rates up and down the commercial aerospace supply chain and boost the company's sales and operating results for years to come.

    Today's trading smells of takeover rumors. The company has traded ~ 25,000 options in the first hour on total daily average option volume of just 4,367. All but 1,355 contracts have been calls for a 17:1 call: put ratio. The largest trade has been the Apr 16 calls 19,000+ times (not a typo). The Stats Tab and Day's biggest trades snapshots are included (in the article).

    The Options Tab (in the article) illustrates that the calls are opening (compare OI to trade size). You can also see that Apr vol is up ~5 points and is now above May which has earnings (a vol event)... hmm...

    The Skew Tab snapshot is included (in the article). As is expected, the upside calls are trading with higher vol than the rest of the chain (see April upside - red line). It's interesting that the back months have yet to react (including the vol event month - May - i.e. yellow). They may if the order flow continues. To read what "normal" option skew is and why it exists you can click <a href="http://livevol.blogspot.com/2010/01/solarfun-solf-call-purchases-with.html">HERE</a>.

    Finally, the Charts Tab (1 year) is in the article. 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 that the stock is up over 100% in the last year. Also note the IV30&#8482 rising past the HV20&#8482. The implication is greater near term underlying move than the stock has shown in the recent past.

    This is trade analysis, not a recommendation.

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