This story originally ran on the iVolatility Trading Blog on Monday, Feb. 7.

Stock Trend Analysis Suggestion

Since the equity markets are trending higher and implied volatility is near the lower end of its range longer term trending strategies could be considered. Here is one direct from the “Options Data Analysis” and the “Rankers & Scanners” sections of our home page. The selection criterion includes an Exponential Moving Average, Relative Strength Index and the Chaikin Money Flow Indictor and more.

CarMax Inc. (NYSE: KMX) is a retailer of used cars in the United States.

KMX reported 36 cents per share earnings on December 21; the next report is due March 31 with Thomson Reuters reporting the mean estimate at 37 cents per share. Its earnings appear to have a seasonal tendency with the June and September quarters better than December and April. By using a longer-term strategy, the June quarterly report can be included in the plan. Consider this combination idea as a long-term trend idea based upon an improving US economy that should benefit KMX.

The current Historical Volatility (HV) is 23.62; the Implied Volatility (IV) Index Mean is 27.21 for an IV/HV ratio of 1.15 while the put-call ratio is .6. The options are not actively traded, so patience will be needed to get the position established. We suggest using spread orders. Since it is thinly traded, the table below shows Friday’s ask price for the buy side and bid prices for the sell legs.

Quarterly Reports

Here is an idea from our Top 5 stocks based on implied volatility Index Mean versus a 30 day historic volatility scan with an IV Mean Index of 34.23 and a Historical Volatility 17.02 for an IV/HV ratio of 2.01, number one on Friday’s scan.

Williams Companies, Inc. (NYSE: WMB) produces, gathers and transports natural gas primarily in the United States. The company operates in four segments: Exploration and Production, Gas Pipeline, Midstream Gas and Liquids, and Gas Marketing Services.

The next quarterly report is due February 17 and the cold weather in the US has boosted the stock price giving it a cold weather premium. There is a well-defined uptrend from September lows around 18.

The put-call ratio is favorable at .25. Consider this put sale idea.

Williams

SandRidge Energy, Inc. (NYSE: SD) is an independent natural gas and oil company in the United States exploring, developing and producing oil in the West Texas Overthrust and Permian Basin.

The next earnings report is due February 24. It also appears to be attracting a cold weather premium.

The current HV is 30.37 and the Implied Volatility Index Mean is 49.79 for an IV/HV ratio of 1.64 landing it as number five in our Top 5 IV/HV scan. On Friday, there were four strike prices with volume of more than 2,000 contracts. The put-call ratio is very bullish at .15.

Consider this longer-term strategy.

Sand Ridge

Las Vegas Sands Corp. (NYSE: LVS) is a casino operator. LVS dropped $4.25 on Friday after reporting a 57% increase in net revenue and a 141% increase in adjusted EBITDA with earnings per share of 42 cents, better than the expected estimate of 39 cents. Apparently, the problem was the revenue in Macau grew slower than overall Macau gaming revenue and the concern is they may be losing market share. Sheldon Adelson, the Chairman addressed the issue when he said infatuation on gross gaming revenue in Macau was misplaced and the more important measure should be EBITDA.

Selling at a forward price to earnings ratio of 21 and a price to earnings growth ratio of .44 the stock drop on the decline of revenue in one business segment seems unusual even for a growth stock, especially since this is Chinese New Year and business should now be very good in both Macau and Singapore.

The current HV is 44.57 with an Implied Volatility Mean Index of 44.50 for an IV/HV ratio of .99 and a moderately bullish put-call ratio of .44. Friday, there were 26 call strike prices with more than 2,000 contracts trading while the total options volume was 313,823 contracts.

While we think the selling was overdone, the IV does not warrant speculating the decline will be reversed soon using a put sale. In the meanwhile, here is a call spread idea in the event it does quickly turns higher.

Las Vegas Sands

Downtrend Reversal

Silver Wheaton Corp. (NYSE: SLW).

The current HV is 55.70 with the Implied Volatility Mean Index at 48.60 for an IV/HV ratio of .87 and a bullish put-call ratio of .4. Friday there were five strike prices with call volume in excess of 2,000 contracts traded. Consider this combination.

Silver Wheaton

Use a close back down below the last pivot at just under 30 as the SU (stop/unwind).

OTHER

EI DuPont de Nemours & Co. (NYSE: DD), classified as a chemical company is active in science and technology worldwide.

We are attracted to DD since it is the second largest seed maker in the agriculture sector after acquiring Pioneer Hi-Bred in 1999 and its recent offer to buy Denmark’s Danisco A/S thus moving into specialized areas like biofuels and food enzymes.

After initially trading lower on the January 9 acquisition announcement and then reversing on January 20 the stock has risen from $48.12 and is now trending higher above the previous resistance at 50 and challenging resistance at the $53 level from 2007-2008. It is currently selling at a price to earnings multiple of 16 and a forward price to earnings multiple of 13 with a price to earnings growth multiple of 1.75 that could be improving with the Denisco A/S acquisition.

The current HV is 14.31 with an Implied Volatility Index Mean of 20.37 for an IV/HV ratio of 1.42 and a put-call ratio of .7. Here is a July idea that would make the expiration near the top of the agriculture sector seasonal tendency.

All of the suggestions above, except KMX are based upon last Friday’s closing prices using the mid-price between the bid and ask. This week the option prices will be somewhat different due to the time decay over the weekend and any price change.