Now that the short term ?big market? news is put away for a few weeks at least we can move to more mundane things like stocks and stories.? We have remarked in some of our Volatility Reports that the VIX is coming into something like a fair price.? It can easily move up or down 1 handles but for the most part it will take some effort to move it one way or the other from the 14 level.? On the topic of single stocks HLF is making some waves so at least there are goodies to look at in the New Year.
HLF (Herbalife ltd.) has taken a roller coaster ride from the mid-$50 level down to the mid-$20s on the now famous David Einhorn Smackdown by another fund manager Bill Ackman.? I guess he does not like supplements.? Whatever the reason I don?t care too much I just know that the stock has been moving.? There has been a pretty solid short covering rally so either Bill is done or some other piggy backers or closing.? That type of movement sets the short term IV sky high.
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Livevol (r) www.livevol.com
If we look at the skew comparison below the Green (Jan 19) cycle is trading well above the Blue (Feb) cycle.? That is the classic backwardation of an underlying going through some big moves or expected big moves.? We are also in the sweet spot of the decay cycle for Jan 19 expiring options and the IV is pretty pumped right there.? If I could sell the Jan 19 cycle and buy something that catches the earnings cycle I think I would have a trade.? I was looking at this in the OP Pit Report and I don?t know why it did not hit me then.? It is hitting me now.
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Livevol (r) www.livevol.com
The Trade
I think some kind of strangle swap makes sense between Jan and Feb.