Newscorp Volatility Alert

[wayneL]

Newscorp! Ahhhh, the bain of all option buyers. This stock has whacked more option traders I reckon than anything else. It wasn't till I understood Volatility did I click as to why.

This isn't really an alert as such, because the situation has always been, and will likely continue. It's more of an observation.

Have a look in the bottom pane in the chart above. Have a look at the IV, it's been generally between 18% and 25%. Now have a look at the red line, the 30 day SV. It's generally oscillating between 13% and 18%.

Now have a look at the 100 day SV, (this gives us an idea of "normal" SV) it's at 15% and generally doesn't vary much from that.

It's staring everybody in the face isn't it? This stocks options are chronically overvalued... by an average of about 5%.

That means that if we buy options, we are paying more than what is warranted by the stocks normal movements.

Then the inverse of this must be true, yes? If we sell options, then we are generally recieving more premium than is warranted.

That gives us an edge if we are sellers. I don't suggest naked sales mind you...puts maybe if you want the stock someday, but definately short spreads, because over time the odds are firmly stacked in your favour.

Whats more it looks as though this has always been the case, have a look at the longer term chart:

NWS options have pretty much always been overvalued, and it's why all those option buyers in NWS get slaughtered. Eventually the numbers are stacked up against you; you are working with the edge against you.

Anyone profitable long term buying these options, I dips me lid.

In fact I will dub you options knight of the realm, worthy of the title Newcorp Templar, a true mercenary

Cheers

 

[Bloveld]

Hi
Since February when IV last peaked many calls have doubled and tripled in value.
Your gonna have to explain it to me as to how call sellers won and call buyers lost.
Thanks Steve

 

[wayneL]

Hi
Since February when IV last peaked many calls have doubled and tripled in value.
Your gonna have to explain it to me as to how call sellers won and call buyers lost.
Thanks Steve

Steve

If you buy NWS options, and you pick the right direction, and it moves enough in the right direction, your going to have a winning trade, no question about that.

I'm talking more over the sum of results over the long haul, rather than a one month window.

Calls buyers have won, but have call sellers lost? Not necessarily.

What has actually happened is that because pure call buyers have paid just a bit too much for those calls, the loss of extrinsic value is just that little bit more than is warranted and therefore the profit just that little bit less than call buyers have truley deserved.

One the other hand put buyers have lost more than they deserved.

Put sellers have had a nice win, they got just a little bit more than SV warranted

Covered call writers have got just that little bit more reward than warranted for having their shares called away.

Bull put sellers payoff diagram is that that little bit better than SV warranted because IV was higher. Other spread traders have negated this high IV risk by having a sold leg(s).

Over the long term this all adds up and delivers an edge to sellers or those who include sold legs.

Those folks really good at picking direction will have made profit but they would have been better off with CFD's.

Cheers and a good point for discussion

 

[Mofra]

NWS options have pretty much always been overvalued, and it's why all those option buyers in NWS get slaughtered. Eventually the numbers are stacked up against you; you are working with the edge against you.

WayneL,

What do you think would be the major reasons behind the these options being overvalued for such an extended period of time? Market perception of volitility being out of touch with statistical reality?

 

[wayneL]

WayneL,

What do you think would be the major reasons behind the these options being overvalued for such an extended period of time? Market perception of volitility being out of touch with statistical reality?

I don't know for sure Mofra.

In the US, Index options and certain blue chips exhibited the same thing.

NWS, as I stated before, is the nemesis of many traders, and I suspect the MM's are no different, so they price in some more risk. That's probably a biased view because I have a few newscorp scars...and just a guess really.

But these days I see it, accept it, and trade it on those conditions. It's a great thing for condor/fly/credit spread traders.

 

[SuperTed]

Ahhh NCP at the old $12 level tis surely naked call time re >>$25 to be safe ;-)

Went over my numerous NWS trades. I only got caught when i wrote puts at the $11.50 or higher level (23 - 24). NWS naked puts at 2200 and less always payed off for me. Naked puts at the higher prices riding a NWS rally to nowhere always hurt and always turned around to bite really hard.

I was actually waiting for a dip well below 2300 to get all naked at 2100 -2150.

Sorry to hijack the volatility thread but wanted to add my thoughts on NWS.

I reckon BHP is the new NWS for vol action and liquidity....long live the new king ;-)

 

[wayneL]

Ahhh NCP at the old $12 level tis surely naked call time re >>$25 to be safe ;-)

Went over my numerous NWS trades. I only got caught when i wrote puts at the $11.50 or higher level (23 - 24). NWS naked puts at 2200 and less always payed off for me. Naked puts at the higher prices riding a NWS rally to nowhere always hurt and always turned around to bite really hard.

I was actually waiting for a dip well below 2300 to get all naked at 2100 -2150.

Sorry to hijack the volatility thread but wanted to add my thoughts on NWS.

I reckon BHP is the new NWS for vol action and liquidity....long live the new king ;-)

Thats not hijacking a thread!! Thems war stories! bring them on!

Cheers