Concordia Healthcare Corp. T.CXR.R

CXR Option Market

[kayaman]

Options yesterday were nutty. May and June's up to 110 implied vol, with some July's trading at 90. (The  last 6 months they've traded at 50-80). If it wasn't for the idiot put sellers I think we'd be even higher. (Options 101 is never sell a naked put -- it's locking yourself into catching a falling knife and if you're bullish then you are not participating in the upside) -- so what this means is something crazy is about to happen. If it was just earnings then July's wouldn't be this high. If it was shorts hedging with cheap calls they would only use May.

Plus you've had big trades with someone buying tonnes of 40's and selling 32,34 puts to pay for the calls giving up 15 vol points. (You don't do that unless you are ultra confident in upside bc you are giving market makers free money to put on that position; and exposing yourself to downside) 

The option market is a very good predictor of the underlying. The last three times the vol spiked we rallied hard. I was thinking we would miss on earnings, but I don't even think that will matter at this point. We've reached the height of negativity (with shorts at 80-90% of borrow and that ridiculous pink eye expose) I think we have nowhere to go but up. 

Note: when FM, TCK, CNQ, ABX... implied spiked this high (FM was 130 in early FEB) that was the turning point. It works time and time again. If you are still short you are being a pig.

[Marcel7]

Thanks for the info! Quick question for you Kayaman. What makes you say its not the shorts covering because if it was they would only use May? Why wouldnt they also use June or any other time horizon to cover? I know the time value of the option would be greater, but if they have artificially depressed the price the impact of the lower price would be greater than the time-volatility portion

[kayaman]

Hey Marcel. Think of it as insurance. The MAY insurance on a nominal basis (and the same on an implied vol basis) is much cheaper and the event they are waiting for is earnings. They are paying for their borrow so they have short term horizons. But If they do have a longer term negative view they could roll into June's in two weeks. Or not be short and buy June or July puts now and mitigate

[CNInvesting]

Any theory on why the June and July vols ? Strikes are out of the money as well. Maybe all because a buyout is expected and there's no way that the stock price is lower than the strike by then ? Most agree on the fair value of the SP, around 55$. If you're ITM @ C40$ for July calls, and a buyout price of 65$, roughly 18% premium, is announced that would be a good deal ( for option traders

[Lattice]

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[kayaman]

Ah I stopped thinking Brexit was a possibility. Last I looked it was 48-41. Maybe that has something to do with the weird Vol skew. But it's been a lot of deep and at the money call buying. I have June 30 puts as my protection... you'd think that would be the better way to hedge against a Brexit.  Should be interesting times in the CXR square!  -- Earnings, Buyout, Brexit, Pink