Key Court Ruling and Volatility Moves
MBIA
(MBI) - Get Report
is trading $10.75, up 3.8% with 30-day implied volatility up 2.6% as of ~9:50 a.m. EST. The
Livevol Pro
Summary is included below:
This stock shows up on two custom scans:
1) Calendar Spread (Month 1 to 2)
2) Elevated 30-Day Implied Volatility
Hereâ¿¿s the news:
MBI won a key ruling in a New York court that promises to reduce the time and cost of gathering evidence it needs to prove that Bank of America fraudulently induced the company to insure billions of dollars worth of mortgage bonds originally issued by Countrywide.
Source: Forbes
Letâ¿¿s check out the Charts Tab first to see where stock and volatility are (and have been).
The top portion is stock, the bottom portion is volatility.
30-day implied volatility - red versus 20-day historical volatility - blue versus 180-day historical volatility - pink.
So we can see that the short-term implied volatilty has sky rocketed passed the short-term and long-term historical volatility, and it seems, for good reason.
Though volatility is high, it doesnâ¿¿t feel like a naked sale. Letâ¿¿s look to the Skew Tab to check out the month-to-month volatility differences and shapes.
So the shapes are similar, but the front month is higher than the second. Letâ¿¿s look to the Options Tab and make a trade.
I want to sell that elevated volatility in January and cover with the depressed volatility in February. A note of caution, buyng back month volatility and selling the front is long vega, so a volatility crush is a risk.
Trades: Sell to open MBI January 10 puts at $0.52, sell to open MBI January 11 calls at $0.75, buy to open MBI February 10 puts for $0.84 and buy to open MBI February 11 calls for $1.12.
This creates a net debit of $0.69, sells about 83 volatility and purchases about 77 volatility.
At the time of publication, Ophir Gottlieb held no positions in the stocks or issues mentioned.
Ophir Gottlieb worked as an equity option market maker and prop trader on the NYSE ARCA exchange floor since February 2008. He is now upstairs (off floor) and visits the floor a few times a week. Prior to working on the exchange floor, Ophir 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 master's degree in financial mathematics from Stanford University as well as an MBA in finance from the University of Southern California and an undergraduate degree in quantitative economics with a focus in mathematics from the University of California, San Diego.
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