USU volatility

Discussion in 'Options' started by Whistlingleaf, Jun 27, 2011.

  1. Anyone know why the volatility is so high on USU ?

    It's stratospheric...

    Earnings don't come out til after expiry.
  2. rew


    I dunno. The stock has gotten cheap, post Fukushima. Historical volatility is about 57% and ATM IV is at 180%. Maybe somebody thinks it's going to be acquired.
  3. News article today:

    USU – USEC Inc. – Call options on the supplier of low enriched uranium (LEU) for commercial power plants were active this morning, but it looks like the largest transaction in USU options was initiated by an investor taking a bearish stance on the stock. Shares in the Bethesda, MD-based company are down 0.30% to stand at $3.07 just before 12:00pm on the East Coast. The strategist responsible for the bulk of USU options volume today initiated a call credit spread, selling 6,300 calls at the October $4.0 strike for a premium of $0.41 each, and buying the same number of calls up at the October $5.0 strike at a premium of $0.30 apiece. The trader pockets a net credit of $0.11 per contract on the trade. Maximum potential profits of $0.11 per contract, or $69,300, pale in comparison to maximum potential losses faced by the investor of $0.89 per contract, or $560,700, should USEC’s shares soar 62.9% in the next four months to trade above $5.00 at October expiration. The investor does not seem to expect USU to make headlines with a recovery story in the near future, making $0.11 per contract reward enough to bear such risk. Shares in the LEU provider have tumbled 53.2% since January, sliding from a 52-week high of $6.35 down to a new two-year low of $2.97 earlier in the session.


    I think they got the trade backwards...

    Makes no sense to risk .89 to make .11 for options that expire all the way out in October ... especially when the same .10 credit can be made on the July expiry in 3 weeks.

    Can anyone look up the trade and see if the article is correct ?