QBE – divergence in options indicator

QBE’s Historical Volatility (HV) rose in the last two months as share rallied from early Jan to yesterday. The normal pattern is that of an INVERSE relationship.

Historical:

4 Jun 12 to 8 Aug 12: share rose 22%, HV fell 13%

7 Jan 2013 to 25 Feb 2013: share rose 10%, HV ROSE 38% (!)

Questions:

1 Did this foreshadow today’s plunge of around 4% (at the time of writing)  post results?

2 With the HV now near peak (yesterday was 35, let peak in Jun 2012 was 36), if HV were to come OFF its peak, would this then foreshadow a rally in the share price?

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Profit downgrades storm QBE

QBE has fallen 6% today to $11.07 as profit downgrades from brokers swamp the stock.

1) very high options volume in the stock yesterday and today

trades on 12 Nov Monday alone (for both calls and puts) equal that of the whole of last week’s. Skewed towards puts.

2) volatility rose again to above 27. breaking above this level may bring to up to 33.

3)  long strategy was seen at $10.50 level

Likely to have more activities as stock settles, some looking for bargain whilst others seeking refuge.

Not settled yet.

Hurricane Sandy and QBE

30 October 2012 2:10pm

QBE touched a low of $12.95 this morning and has recovered slightly to be trading a bit above $13.00

Top of mind for traders are: i the potential liability of SuperStorm on QBE’s earnings ii will it meet is FY12 guidance

Well, though impact of storm is still too early to tell, but QBE has 2 defenses for now: catastrophes had been light in 2012 and it has increased its provision from premium for 8% ish to 10% ish. So, at current state of play, yes, it’s likely to meet FY12 guidance.

This uncertainty has caused Implied Volatility (IV) in QBE to spike

Rrecent low of IV when stock hit $14, was 19%

last few days as stock fell a dollar from $14 on 19 October, IV has spiked to 24% yesterday.

Spiked IV, prime for options selling.

Those who don’t hold a bearich view on the stock, had been selling

Dec12 $13 and Dec12 $13.25 puts

Fortescue back in favour?

Good volume on calls today, with minimal put activities

Had have healthy Put/Call ratio all month.

Last week Thursday with stock breaching above $4.10, seemed like an impetus on the upside.

Attracted attention with buyers in Nov $4.40 calls

Implied Volatiliy (IV)  now at 42% with stock price $4.25 thereabouts, shows mid point level for stock.

Depth of share price in Sep 2012 showed an IV of 62% whilst height of $6 in Mar this year show a high of 31 on IV

The closest share price was at the IV of 42 like now is in June, when FMG was at around high $4’s and $5.

But, fundamentals haven’t changed, still high in debt.

That might be a suggestion of a bit more to go on the rally.

Telstra above $4.00

Options actions on TLS today. High volume on both calls and puts.

This week Thursday is October options expiry

180,000 over contracts in the money in October.

strikes of $3.71, $3.90, $3.86 and $4.00

Majority are likely to be Sold calls for opening trades for covered call positions.

They will need to be rolled to avoid being exercised to sell.

More activities on TLS calls expected this week, but not necessarily a bullish move

FMG secures US$4.5b credit facility – options activities

1) trading in FMG options last week (with a fall of 13.8% on Thursday 13 Sep down to $2.99)

Volume – low all last week for both calls and puts. Average weekly contracts were about 20,000.
Only hint was some 40,000 contracts traded on puts on Thursday. However, in a day where the stock fell some 14%, that sort of put volume was normal.

There was no acceleration in puts at the $2.99 level.

Last week, rather quiet on low volume on FMG options

2) Today, with FMG back from trading halt, stock opened at $3.44

How’s volume: very good. Ending the day with about 50,000 contracts of calls and 62,000 in puts. Above average.
The higher put volume is a pick up in the afternoon, as for most of mornings, trading in calls and puts had been quite balanced. Closing with higher puts traded

some larger trades: large volume went through early morning were at the $3.50 strike for both calls and puts at Sep and Oct . Straddle at $3.50.
$3.50 seems to be a pivotable mental point for traders

Implied volatility: spiked for September expiry. With a historical of 89, it has spiked up to 100 for both calls and puts. ASX has also increased the Margin Interval for FMG options today. Higher volatility expected to stay.

Summary: speculation of option traders’ mindset on FMG – circumspect.

FMG closing price on 18 Sep 2012: $3.50

Fortescue (FMG.ASX) shares at 3 year low

Following my commentary on SKY business on Tuesday (4 Sep), P/C ratio on FMG has continued to deteriorate.

Last week (ended 31 Aug):
– saw huge volume on puts trading
– weekly puts traded increased by 44% (vs calls increase of 22%)
– Weekly Put/Call ratio was at 2.5 times

In the last two days, puts have continued to dominate and this is happening at very high near term Implied Volatility. It’s a sign of aggressive put buying.

If history is a guide, with historical IV peaking at 63% back on 4 Oct 2011, with the current reading of 54.5, it may not be over…