optionvol-NBC-Bay-Area

CALL closed Wednesday trading at $17.32, up 4.8% with IV30™ down 1.4%. The Symbol Summary is included below.

Provided by Livevol

magicJack VocalTec Ltd (magicJack VocalTec) is a provider of voice-over-Internet-Protocol (VoIP), the softphone (magicJack PC) and the magicJack products. magicJack VocalTec’s product include magicJack and magicJack PLUS, magicJack PC and magicJack APP.

This is a note on some very unusual trading in the option market ahead of a stock pop that more than doubled the speculator's bet.  I was made aware of this fascinating phenomenon by Kaitlyn Kiernan from WSJ.  She wrote a bang up piece on it, which you can read here:

MagicJack Options Trade Hits Jackpot, But Raises Questions; Trade Comes Before Whitney Tilson Touts Company's Stock

I'm going to walk us through a thorough analysis of what appears to be not only improprietous trading, but devious even in that realm. This is really good stuff...

Let's start with the news, quoting Kaitlyn's article:

---
Shares of the voice over Internet wireless communications provider surged 18% Monday after hedge-fund manager Whitney Tilson touted the stock late Friday in a newsletter.  MagicJack shares jumped $2.50 Monday, to $16.25, for the biggest one-day percentage gain since September 2010.

[On 1-27-2014] magicJack options trading volume soared to more than 10 times the daily average, according to options-data firm Trade Alert LLC. Behind the surge was big interest in February $15 call options, which each grant the right to buy 100 magicJack shares for $15 apiece through Feb. 21.

In less than two minutes, an investor bought about 3,500 Feb. $15 call contracts at an average cost of 48 cents a share, according to Trade Alert data, which doesn't show who the buyer was.
---

But oh my, how this was done with such elegance.  Let's start simple.  I have included the Options Tab from the close of trading on 1-27-2014.

Provided by Livevol

Note that 8,832 Feb 15 calls traded on total daily average option volume of less than 1,000 contracts.  OK.. then what?...

At 3:28 a bunch of sell orders in small quantities came in on the Feb 15 call line.  I have included the Time & Sales Tab below.

Provided by Livevol

Note five things:
1. The small quantities.
2. The price of the market when it started ($0.35 x $0.50)
3. The price of the market when it ended ($0.35 x $0.40)
4. The time!  All trades executed at 3:28 EST.
5. These were sales (and thus the prices went down).

Now let's fast forward a full eight seconds, and look at the Time & Sales Tab again.

Provided by Livevol

Note three things:
1. The large quantities
2. The price paid for the largest trades ($0.35).
3. The time!  The trades executed anywhere from eight seconds to six minutes later.

So what happened?  This name doesn't have great liquidity (low option volume), and therefore a lot of small trades hitting the bid (sales) will lower the option price fairly quickly.  That's what happened at 15:28.

But then "someone" eight seconds later put in huge buy orders that were filled for $0.35 rather than the offer at $0.50 just eight seconds prior.

Yeah... It appears someone manipulated the market with small (but many) sales of the option that they intended to buy (and did buy).  In fact, they did it seconds later.

And what do you know, a week later (or whatever), CALL stock pops on "unexpected news" and how much are those ~$0.40 options worth now?...

Let's turn to the Options Tab as of the close today.

Provided by Livevol

They are now worth ~ $2.30.  Well, well.

Fool me once for trading size ahead of a stock pop.
Fool me twice for manipulating the price.

Is it possible this was a coincidence, or there was no impropriety?  Yes.

Do I think that's what happened.  No.

This is trade analysis, not a recommendation.

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Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

New 52 Wk Highs in S&P 500



Unusual Option Volume




Unusual Volatility Moves




Elevated Implied Volatility (IV) to Historical Volatility (HV)



Depressed Implied Volatility (IV) to Historical Volatility (HV)




This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

CHTP is trading $$5.19, down small with IV30™ down 4.7%. The Symbol Summary is included below.


Provided by Livevol

Chelsea Therapeutics International, Ltd. is a development stage pharmaceutical company that focuses on acquiring, developing and commercializing products for the treatment of a variety of human diseases.

This is a note on a bio-tech with a ridiculously weird recent past and an FDA decision due out Feb 14.  It's risk time...

First the recent news:

---
1-15-2014
What: Shares of clinical-stage pharmaceutical company Chelsea Therapeutics skyrocketed as much as 151% shortly after the opening bell following a positive recommendation from the Food and Drug Administration's advisory panel on the symptomatic neurogenic orthostatic hypotension drug, Northera.

So what: Chelsea Therapeutics said in a press release after the closing bell yesterday that the FDA panel voted 16-1 in favor of recommending Northera for approval.

Source: The Motley Fool via Yahoo! Finance Why Chelsea Therapeutics Shares More Than Doubled
---

Why is that weird?... Well, here's why.

---
This news comes in stark contrast to fears last Friday about the panel's decision, based on briefing documents that alluded to a complex decision based on Northera's significant short-term effectiveness and iffy long-term effectiveness. Although the FDA isn't required to follow the panel's advice, it does more often than not, giving Northera a better than 50-50 chance at approval at this point.

Source: same as above
---

If we look to the Charts Tab, you will see the absurdity. The Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

Look how the stock collapsed from $4.44 to $2.50 on the original news that the approval was looking "complex," and how literally, right after the low, the stock ripped to $5.78 (from $2.50) when the FDA panel voted 16-1 in favor of recommending Northera for approval.

Talk about misreading the tea leaves...

For those of you that aren't familiar with FDA approvals, the panel just makes a recommendation.  The FDA makes the decision.  It's that decision that is coming out on Feb. 14th.  That means risk... a lot of it.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

Three things that are hugely noteworthy:

1. The implied volatility reached 400% during the cataclysm news digestion (i.e. when the tea leaves read "no drug approval."

2. The volatility collapsed once the news came out that the FDA panel voted 16-1 for approval (that's normal -- once news is out, risk is lessened and that means volatility drops).

3. The implied has risen into this next (possibly final) FDA go around, but not as high as before.  To be fair, Feb vol is priced at 294% -- but that ain't 400%.

Finally, the Options Tab is included below.

Provided by Livevol

So here we go.  We can see that the Feb 10 calls are bid as are the Feb 2 puts... the at-the-money (ATM) straddle is priced to ~$2.00 which is ~40% of current value.  I dunno, this may sound absurd, but does 40% sound cheap?

OK, 294% vol is hard to call cheap, but what happens if the FDA rejects the drug for approval?  What happens if the FDA approves the drug? Do either of those events lead to the stock inside the range [$3, $7]?  I can think of one event that will keep the stock in that range, and kill all that volatility in Feb -- if the FDA decision is delayed or somehow inconclusive but not worded in a way that is overly positive or negative.  And yeah, that happens a lot.

My take is that if there is an end-all-be-all decision, the stock is higher than $7 or less than $3.  But we might not get an end-all-be-all decision.  Then what... owning that juice could be quite painful.

We'll see.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

New 52 Wk Highs in S&P 500



New 52 Wk Lows in S&P 500



Unusual Option Volume




Unusual Volatility Moves




Elevated Implied Volatility (IV) to Historical Volatility (HV)



Depressed Implied Volatility (IV) to Historical Volatility (HV)




This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

TSLA closed Monday trading at $196.56, up 5.4% with IV30™ up 6.1%. The Symbol Summary is included below.


Provided by Livevol

This is a follow up to the articles I published on 1-14-2014, 12-25-2013 and 11-18-2013. You can read the posts by clicking on the titles, below.

I note that TSLA has earnings due out on 2-19-2014, so I will post a pre-earnings article... And from the looks of things, it's gonna need it. This story is just starting to build again. Oh, and before I forget, TSLA just hit an all-time high today.

Bottom line: The option market has nailed TSLA stock movement of late, most recently reflecting that "This Isn't a Bubble, It's Equilibrium With Upside." But things have changed... and we have earnings in nine days.

1-14-2014
Tesla Motors (TSLA) - Not a Bubble, But Stability. How TSLA popped Today, But We Already Knew That in November.

12-25-2013
Tesla (TSLA) - The Option Market: "This Isn't a Bubble, It's Equilibrium With Upside"

11-18-2013
Tesla Motors (TSLA) - Stock Collapsing, Volatility Rising, but the Paradigm Has Not Shifted... Yet

The point of the prior blog posts were pretty simple...

I have written about TSLA extensively (compulsively?) in the past. Before getting into the details I do make one quick note. In the post on 11-18-2013 I wrote that the skew in TSLA still showed a likelihood of an upside move (parabolic skew -- details below in the article). Since then the stock went from $124.76 to now $196.56.

To start the analysis, we have to look at the skew in TSLA over time. Let's start with August 2013.

Provided by Livevol

Note that the skew shape across the front three months; it was "normal"; the Out-of-the-money (OTM) puts were priced to higher volatility than the at-the-money (ATM) option and the OTM calls.  To read more about skew, what is and why it exists you can click the title below:

Understanding Option Skew -- What it is and Why it Exists.

While TSLA had normal skew back then (with the stock price at $135), the skew shape shifted dramatically as the long interest grew.  Let's turn to the Skew Tab as of 11-18-2013, below.

Provided by Livevol

Note how we saw a parabolic skew shape in November, which meant that the option market reflected equally elevated risk to the upside and the downside.  So, while the stock had been collapsing, the option market still read "upside has potential."

On 12-25-2013 I wrote:
Watch this skew shape, if it turns back to the "old shape" (which is really a normal shape), then that would mean the option market no longer reflects that upside potential and that would in fact be a paradigm shift (again) for TSLA.

Here's how the skew looked on 12-25-2013:

Provided by Livevol

It was still parabolic.

But in Jan of this year, and today, we finally see the skew back to "normal." Look at the Skew Chart as of today (2-10-2014):

Provided by Livevol

Compare the skew today to the skew from August 2013 -- they look nearly identical. That upside tilt has gone away, and it had persisted for a very long time, even as the stock was dropping.  TSLA has earnings due out on 2-19-2014, which makes the skew reversion even more eye popping. Usually TSLA shows a parabolic skew into earnings. But not now...

Let's turn first turn to to the IV30™ chart from 12-25-2013 in isolation, below.

Provided by Livevol

That was pretty awesome -- we saw that as the stock had been rising, and even as the stock was dropping prior, the volatility had been dipping.  The option market read that TSLA was becoming quite comfortably into this valuation... and it continued to rise.

But as earnings are approaching, the volatility is finally rising (as expected).

Let's turn to the two-year Charts Tab below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

Two things to note:

1. The stock just breached an all-time high today. TSLA is now a $24 billion market cap company.
2. Check out that volatility rise as the stock has been rising (quite different from the past).


To see the IV30™ move more clearly, I have included the two-year IV30™ chart in isolation, below.

Provided by Livevol

Yes it's rising b/c of earnings, but it started rising well ahead of the event. Actually, it started right about when I posted the 12-25-2013 article.  The volatility is up from ~50% to now ~80%, and the stock is up from ~$150.  That volatility will rise unless there is some big pre-announcement.  Watch for IV30 to hit near 100%.

So what?...


While the option market nailed this one through January 2014, it has now signaled a new risk paradigm.  Namely, two-tailed risk is off (no upside tilt), and overall risk is up.

As I wrote in January:
"I do note one critical change here... The implied volatility is rising again in TSLA.  Hold on, this could get bumpy... again..."

It's gonna get bumpy. And that's not even referencing earnings yet... Watch this one. I will...

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

AFSI closed Monday trading at $31.05, down 5.5% with IV30™ up 8.1%. The LIVEVOL® Pro Summary is included below.


Provided by Livevol

Amtrust Financial Services, Inc. is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four business segments: small commercial business, specialty program and personal lines reinsurance.

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Ultimately this is an elevated volatility  note into earnings... but this volatility is like no other AFSI has seen -- earnings or otherwise. And it surrounds an accusation of accounting fraud.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ GTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech

The AFSI Charts Tab (two-years) is included below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

The stock chart is wild, full of massive gaps in the stock including the most recent drop from $41.06 (12-6-2013) to $28.62 (12-18-2013).  That 30% drop was accompanied by a huge pop in the implied volatility from 38.65% to 96.65% or a 150% explosion.  Now that was a multi-year high in the volatility... and then the last few days happened.

Let's turn to the two-year IV30™ chart in isolation, below.

Provided by Livevol

We can see that explosion in the implied during the stock drop, but now the implied has risen even higher, to unprecedented levels ahead of earnings.  The blue "E" icons represent prior earnings dates, and as you can see (I've highlighted them), AFSI has never seen anything close to this level of risk reflected in the options in the last seven earnings cycles (or any other time in the last two-tears).

Just for a point of comparison here are the  IV30™ levels of some other firms you may be familiar with:

TSLA: 80.00%
TWTR: 55.42%
DDD: 65.61%
NFLX: 34.01%

Yes, of course those other firms don't have earnings right now, but at 105.78% volatility, we are looking a big number, not just for AFSI, but for almost any company.  The real question is this:

Is the risk reflected by the option market truly reflective of the risk in earnings, or is it an artifact of the last big move down and volatility pop? Here's a tidbit: The big move down surrounded allegations of fraud. Just let that ring for a sec...

Finally, let's look to the Options Tab (below).

Provided by Livevol

Across the top we can see the monthly vols are priced to 132.71% for Feb and 93.06% for Mar.  This little known $2.5B market cap financial is exhibiting huge risk into earnings.  But is it an accurate reflection?... We'll see on 2-13-2014 when earnings come out, but the mere implication of fraud does mean this stock has a heightened risk of a "Black Swan" stock drop. Doesn't mean it will happen, in fact, maybe it already did... but yeah, the risk should be at unprecedented levels.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

New 52 Wk Highs in S&P 500



Unusual Option Volume




Unusual Volatility Moves




Elevated Implied Volatility (IV) to Historical Volatility (HV)



Depressed Implied Volatility (IV) to Historical Volatility (HV)




This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.