FMG.ASX (last $4.95)
There was huge volume on FMG options on Friday. In fact its weekly volume was 3 times that of the week before and about 70% more than the last 4 weeks’average of 100,000 weekly contracts. Though trading in calls doubled, but trading in puts quadrupled.
Trading on the call side tells some of the story of its trend. Most trading in calls seemed to have been buying and are mostly of out-of-the money calls as well, with high exercise price and low option price, some of these are like the Oct $650 or Sep $550 calls. These could be related to closing of sold call positions or new longs. Overall, the low volume on call trades show a lack of stong conviction buying on the stock.
On the puts though, they were more varied. Some large quantities look to be rolling of Sep positions like the $550 puts to Oct, to reduce early assignment risks; others selling of Oct $500 puts and various other combination trades.
What stood out for FMG is not just the elevated volume but also the heightened implied volatility. Its daily average implied volatility on Friday was at 44, that’s higher than the most recent high of 42.99 in early August this year when FMG was at around $5. This higher level of implied volatility is in sympathy with Friday’s share price which has broken below $5.
It then begs the question, how high its implied volatility can possibly go? This will bring us back to the next level reached in Jul 2010 when FMG’s implied volatility climbed to as high as 51.5. FMG was as low as $4 then. This may be the next level down should there be a further sell off in the resource sector.