YHOO - Elevated Vol Rising

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

  1. livevol_ophir

    livevol_ophir ET Sponsor

    YHOO is trading $16.50, down 0.3% with IV30™ up 0.4%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/yhoo_15.html">in the article</a>.

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    I wrote about YHOO last week. You can read that here:
    <b><a href="http://livevol.blogspot.com/2010/11/yhoo.html">Yahoo (YHOO) - Takeover Rumors Push Vol and Skew</a></b>

    My favorite trade in that blog:
    Sell the Nov 17 calls @ 0.43 and buy 4 of the Nov 19 calls for a total of $0.40. This trade yields a little credit, and wins huge if YHOO is taken over for a premium over $20.

    Today, I found this stock using a real-time custom scan. This one hunts for high vols.

    <b>Custom Scan Details</b>
    Stock Price &gt;= $7 and &lt;= $70
    IV30™ - HV20™ &gt;= 10
    HV180™ - IV30™ &gt;= -8
    Average Option Volume &gt;= 1,200
    Industry != Bio-tech
    Days After Earnings &gt;=10 and &lt;=60

    The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) 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), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching. The YHOO Charts Tab is included (<a href="http://livevol.blogspot.com/2010/11/yhoo_15.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    We can see:
    IV30™: ~41.31
    HV20™: 23.22
    HV180™: 30.71

    So, IV30™ is elevated relative to the short term and long term realized movement of the stock.

    Let's look to the Options Tab (<a href="http://livevol.blogspot.com/2010/11/yhoo_15.html">in the article</a>).

    <b>Possible Trades to Analyze</b>
    1. Sell the Dec 17 straddle @ $1.69 (~41 vol). Beware the takeover talk and stock and vol moves whether or not it's realized if there is a rumor... again...

    2. Do #1 above, but buy 1 Dec 18 call and 2 Dec 19 calls. That yields a $1.69 sale and a $0.86 purchase or a net credit of $0.83, safe to upside if there's a takeover at a reasonable premium while still collecting premium. This is naked downside.

    3. Do #2 above, but buy a Dec 15 put for $0.21. This yields a $0.65 credit but lowers downside risk and margin requirements. At this point, this is less about selling vol and more about creating a nifty spread.

    This is trade analysis, not a recommendation.

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    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/11/yhoo_15.html">http://livevol.blogspot.com/2010/11/yhoo_15.html</a>

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