Hertz Global (HTZ) - Low Vol in Takeover Bonanza and Earnings
Hertz Global (HTZ) - Low Vol in Takeover Bonanza and Earnings
At the time of this post HTZ was trading $10.37, up 3.5% with IV30 down 7.2%. A market snapshot is below.
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There is news in HTZ, in particular with a wild takeover battle:
On Wednesday, 9/22/2010 Avis Budget Group Inc (CAR) increased its offer to acquire Dollar Thrifty (DTR) to $45.79 a share and 0.6543 shares of CAR for a total offer of $53 a share.
The CAR bid is an increase over the previous top bid of $50 per share, submitted on 9/12/2010 by Hertz Global Holdings (HTZ). Hertz Global Holdings and Avis Budget Group engaged in a bidding battle over Dollar Thrifty since April, when HTZ submitted a $39-a-share proposal.
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Oddly enough, on 9-27-2010, HTZ was on the high vol custom scan while today I found it on the low vol scan. I'll post a high vol blog on a different stock later today.
Low Vol Custom Scan Details
Stock Price >= $7
IV30 - HV20 <= -8 >= -40
HV180 - IV30 >=7
Average Option Volume >= 1,200
Industry = Bio-tech
Days After Earnings >= 32
The goal of this scan is to identify short-term implied vol (IV30) that is depressed 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 purchasing depressed IV30 relative to HV20 simply because of a large earnings move.
The HTZ Charts Tab is included (below). I've just included the vol portion: (IV30 - red vs HV20 - blue vs HV180 - pink).
We can see:
IV30: ~47.69
HV20: 58.16
HV180: 55
So, IV30 is depressed relative to the short term and long term realized movement of the stock. Note that last time (in Sep), we looked to sell 65 vol.
Finally, let's look to the Options Tab (below). Note that earnings are projected for the Nov cycle.
Possible Trades to Analyze
1. Buy the Nov 10/11 strangle for $0.75 and hope for a move on earnings (or otherwise).
2. Do #1 above, but sell the 9/12 strangle @ $0.25 for a net debit of $0.50. This is interesting because the MaxGain:MaxLoss ratio is 1:1 meaning this is a pure bet that vol is too cheap. i.e. this trade makes sense if you believe there is a better than 50% chance the stock moves.
3. For you traders out there allergic to buying options (ah hem), you can try some sales on a ratio of the OTM Nov options.
This is trade analysis, not a recommendation.
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About Ophir Gottlieb
Ophir has worked as an equity option market maker and prop trader on the NYSE ARCA exchange floor since Feb. 2008. Prior to working on the exchange floor, he worked as a structurer on the Countrywide trading desk and before that as the Director of Client Services and Research for the quant modeling firm Audit Integrity. He has a Masters degree in Financial Mathematics from Stanford University. He also has an MBA in finance and an undergraduate degree in quantitative economics with an area of focus in mathematics.
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