Skip to main content

I like to create trades around situations where I think there is a bit of an edge. The hardest thing really is finding them. After stocks have moved, that generally signals a good entry point for a trade, if the pricing still exists. The big move in a stock pushes up the 30-day historical volatility (that is the backward looking 30-day moving average of realized volatility of the stock) and usually drags the implied volatility with it.

Specifically, I create a view on Aqumin's AlphaVision landscape that looks at the 30-day historical volatility percentile of the last six months and one-week total return. What this gives me is a picture of the story stocks. On this side of the landscape, I look for tall green spikes which are stocks that have cratered with an accompanying rise in 30-day historical volatility (that means they moved down fast).

Lender Processing Services (LPS) Volatility

Source: Aqumin

View Chart

I have been watching Lender Processing Services (LPS) and I wanted to wait until some of the smoke cleared. The reason for the drop was the possibility that LPS was liable for documentation items related to its mortgage processing business. According to company, that is not the case (there is plenty on the various financial website on it). What interests me is the yearly high in 30-day implied volatility that this news created. LPS is already moving nicely off of its lows and currently trades at an 8.4 P/E, with a solid earnings record. My recommendation provides that you must be comfortable with owning the stock $2.00 below its current 52-week low. You will be short an option into this earnings cycle, but are still catching very high implied volatility now.

Trade: Sell to open LPS November 25 puts at $0.90, with LPS trading above $27.60 on a 26 delta.

At the time of publication, Andrew Giovinazzi held no positions in the stocks or issues mentioned.

TheStreet Recommends

Andrew is the Executive Vice President of Business Development for Aqumin, where he participated in the design team to apply AlphaVision to the financial markets. For 15 years he was a member of the Pacific Exchange and the Chicago Board Options Exchange, where he actively made markets and traded in both equity and index options.

OptionsProfits For actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.

Readers Also Like:

>>A Collar Case Study

Readers Also Like:

>>'Tis the Season

Readers Also Like:

>>10 Banks That Defy The Great Recession