Holly Corp. (HOC) - Unusual Call and Put Action on Skew and Delta (Takeover?)

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Holly Corp. (HOC) - Unusual Call and Put Action on Skew and Delta (Takeover?)

Yesterday, HOC was trading 28.57 with IV30ô down slightly. A market snapshot is below.


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The company traded nearly 5,000 options on total daily average option volume of just 1,013. All but 3 (not a typo) contracts were calls. The action was in the Jun 30 calls. The Stats Tab and Day’s biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates:

1) The calls are opening (or substantially opening) since volume is > OI by a lot (see options tab).
2) This new open interest will be the largest of any other line in any other month.
3) The only other strike with over 1,000 OI is the Jun 25 puts (back to that in a sec.).

The Level 2 pop-up (click to enlarge) for the Jun 25 puts illustrates that on 5-7-2010 (a few days ago), all of the OI in the puts came in.

Going to Time & Sales for that day, that strike and those puts (click to enlarge), we can see the two largest trades (totaling 3,000 puts) were sales.

So the call purchases yesterday were the largest position taken in any line in any month. The second largest position was taken seven days ago, same month, selling puts.

The Skew Tab snap (click to enlarge) illustrates the vol and shape of the upside skew. As I was writing this, the skew literally changed shape. I have included both charts - the first is the one when I started writing this, the one below is 15 minutes later.

I was going to write that my best guess was that the skew would have to change/shift if the order flow continued... Well, it did... The upside and the entire month in general got more expensive (i.e. yellow month is higher than the rest, and the right side of the skew now bends more upward).

Finally, the Charts Tab (12 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30ô - red vs HV20ô - blue). The yellow shaded area at the very bottom is the IV30ô vs. the HV20ô vol difference.

The chart is interesting in that the 52 wk, high for HOC is 33.50 (ish), and buying the Jun 30 calls for $0.90 breaks even at $30.90. In my opinion, if this is a naked bet to the upside (i.e. put sales fund call purchases) - this could be a bet of a news driven move up (i.e. takeover, spin-off, etc) - not just a wandering up. For what it’s worth, the stock has started a nice little climb recently - that’s highlighted in the top portion of the chart.

The vol that was purchased (see first skew chart) seems pretty cheap - especially to where it is now (ah, hindsight is 20-20 isn’t it?).

Interesting trades... we’ll see - I’m not a big better on takeovers, or big moves at all in general, but this will be fun to watch.

This is trade analysis, not a recommendation.



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