XRTX - Low Vol in Stuck Stock

Discussion in 'Options' started by livevol_ophir, Oct 22, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    XRTX is trading $16.23, up 0.5% with IV30™ up 0.9%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/10/xrtx.html">in the article</a>.

    <img src="http://www.livevolpro.com/help/images/blog/xrtx_summary.gif" />

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    XRTX is a provider of modular enterprise-class data storage solutions and storage process technology. I found this stock using a real-time custom scan. This one hunts for low vols.

    <b>Custom Scan Details</b>
    Stock Price&gt;= $7 and &lt;= $70
    IV60™&nbsp;&gt;= 1
    IV60™ - HV60™ &lt;= -8&nbsp;and &gt;= -40
    HV180™ - IV60™ &gt;= 8
    Average Option Volume&nbsp;&gt;= 1,200
    Industry != Bio-tech

    The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and want to avoid bio-techs (and their crazy vol).

    The XRTX Charts Tab is included (<a href="http://livevol.blogspot.com/2010/10/xrtx.html">in the article</a>). The top portion is the stock price, the bottom portion is the vol: IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).

    <img src="http://www.livevolpro.com/help/images/blog/xrtx_charts.gif" width="600" />

    We can see:
    IV60™: 55
    HV60™: 63
    HV180™: 64

    So, IV60™ is depressed relative to the intermediate term and long term realized movement of the stock. We can also see that the stock gapped down hard after earnings on 9-30-2010, and since then has been essentially frozen. Even given that limited move, the implied is still <a href="http://livevol.blogspot.com/2010/10/xrtx.html">in the article</a> the intermediate-term realized. Note though, the HV10™ is a minuscule 28.41.

    Finally, let's look to the Options Tab (<a href="http://livevol.blogspot.com/2010/10/xrtx.html">in the article</a>).

    <b>Possible Trades to Analyze</b>
    1. We're looking at the IV60™, which is more like Dec than Nov. A Dec 15/17.5 strangle purchase for $1.65, buys 54 vol (ish). It requires XRTX to be outside of [$13.35, $19.15] if held to Dec expo.

    2. Doing trade #1 and selling some wings, like the Dec 12.5/20 strangle reduces the total debit to ~ $1.15, though gives up some "big move" room. It's hard for me to stomach naked purchases, so I threw this possibility out there too.

    3. Ok, a bit wild here, but how about selling the Nov strangle and buying Dec. I know that's selling vol that I just said was low, but if the stock hangs around for a few more weeks as it has, that long strangle in Dec will look damn cheap with a sale of the Nov to give it a hair cut (if that's a winner). Just fyi, not in love this trade.

    4. Maybe this thing can't gap down much further in the near-term without any earnings news?... Selling the 59 vol Dec 12.5 puts is a backwards yet somehow reasonable approach to this phenomenon as well.

    This is trade analysis, not a recommendation.

    <b>Follow Live Trades and Order Flow on Twitter: @Livevol_Pro</b>

    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/10/xrtx.html">http://livevol.blogspot.com/2010/10/xrtx.html</a>

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