Sears Holdings (SHLD) - Vol Pops, Near-Term Skews Open Vol Diff To Upside

Sears Holdings Corporation (Holdings) is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). Holdings is broadline retailer with 2,201 full-line and 1,354 specialty retail stores in the United States operating through Kmart and Sears and 483 full-line and specialty retail stores in Canada operating through Sears Canada Inc.

This is a vol note -- focusing both on the move today and in the near-term skew. Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see that the stock price is actually almost exactly where it was six months ago, but the ride has been bumpy, seeing a six month closing low of $29.20 (1-6-2012), and a closing high of $83.43 (3-15-2012). The 52 wk range in SHLD is [$28.89, $87.66].

Looking to the vol, we can see a similarly bumpy ride, with an annual range in IV30™ of [31.82%, 112.46%], putting the current level in the 43rd percentile -- so pretty close to the middle. On 3-26-2012, IV30™ dropped to 53.87% and has risen since then by nearly 25% (~14 percentage points). Today the vol is up 9.3% on seemingly little news. But, it's the near-term skew comps that really caught my attention.

Let's turn to the Skew Tab.

I've only included the weekly options expiring this Friday and the Apr monthlies. Both of these expiries show a parabolic skew, reflecting essentially equal risk of a downside slide or an upside pop. Much of that is tied to the fact that SHLD is perpetually hard-to-borrow (HTB).

Looking a bit closer at the skews, notice how the Apr monthly vols are flatter for more strikes relative to the rather abrupt upside skew in the weeklies. While the ATM vol is higher in the weeklies relative to the monthlies, that upside skew difference opens up an even larger vol diff.

Finally, let's turn to the Options Tab, below.

Assigning a single number to each expiration, we can see that Apr weeklies (80.25%) are priced about 13 vol points higher than the Apr monthlies (67.20%). But, walking up the strikes to the 75 line (for example), that vol diff opens to over 20%.

This is trade analysis, not a recommendation.