TTWO - Calls Trading on Reverse Skew

Discussion in 'Trading' started by livevol_ophir, Jan 11, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    The company has traded over 12,000 options today in the first hour on total daily average option volume of 3,535. Further, 11,888 have been calls for a 40:1 call : put ratio.

    The Jan 12.5 and Feb 12.5 calls are trading the vast majority of the volume. Note the OI in the Feb calls is substantially smaller than the volume - those are opening.

    The Jan 12.5 call purchases are going to increase OI. The Level II demonstrates that an increase in opening positions on 12/21. Time & Sales on that day for the Jan 12.5 calls demonstrates that these were purchases. Since the trades today are also purchases, this is a double down on the original bet.
    Notice also the IV on the options for Jan.

    With the stock 10.76 the 10 level puts ($0.76 out of the money) are 0.05 x 0.15. The Jan 12.5 calls ($1.74 out of the money) are 0.15 x 0.20. So the calls are substantially further out of the money and still more expensive. That translates into a 150 IV in the calls and 79 in the puts. That is the complete opposite you would expect to see in vol skew. For more details you can read the vol skew blog posted a few days ago which made it onto Bloomberg here: Ultimately this points to much greater demand for upside calls.

    You can see details, charts, prices on my blog here: