Tuesday, January 31, 2012

Polypore International (PPO) - Stock Collapsing and Vol Exploding Right Now, Because?...

PPO is trading $41.46, cascading down 23.7% with IV30™ exploding up 42.1%. The LIVEVOL® Pro Summary is below.



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Polypore International, Inc. is a global high technology filtration company that develops, manufactures and markets specialized microporous membranes used in separation and filtration processes.

Let's start with the Tick Chart for PPO. The top portion is the stock price, the bottom is the front month vol -- these are one minute bars for today only.



What's so interesting is that the stock has been steadily imploding (and the vol steadily exploding). That is, the stock didn't open down size, nor has it reacted to a bit of mid-market day news. It's just going down... and it's not stopping.

In terms of news, other than a downgrade well after most of the drop, I have no idea what's going on here. Let's turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see the collapse today in stock price and the vol pop in relative comparison to the past six months. The 52 wk range in PPO was [$42.43, $74.21] before today. So, in English, the stock has hit an annual low. The 52 wk range in IV30™ is [43.41%, 86.38%]. The current level sits in the 82nd percentile.

The fact that vol isn't well above an annual high essentially assures me that the news (whatever it is) is known. Otherwise I'd bet not only an annual high in vol, but perhaps a multiple of that high. Let's turn to the Skew Tab.



We can see a monotonic vol increase from the back to the front months with Feb showing a parabolic shape. That is, the front month reflects both upside and downside risk. Still, I would have expected the front to be considerably more elevated to the back if this was truly a "mystery." Or, said differently, this isn't a mystery to a lot of people.

Finally, let's turn tot the Options Tab.



We can see the monthly vols are 77.75%, 72.645 and 64.50%, respectively, for Feb, Mar and Jun. The ATM Feb straddle is quoting at $4.80 x $6.30. The width of that market makes sense. Still, is ~$5.55 (mid-market) for the ATM straddle really expensive given the recent move? I dunno... Seems like it would be higher...

As I'm about to publish this article, the stock is trading down to $39.80 and IV30&#8482 is 80.81%.  The ATM straddle market has tightened to $5.85 x $6.40. Mid-market is now $6.125.

This is trade analysis, not a recommendation.

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RadioShack (RSH) - Stock Tumbles, Vol Explodes on Pre-announcement

RSH is trading $7.27, down 28.9% with IV30™ popping 52.3%. The LIVEVOL® Pro Summary is below.



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RadioShack Corporation (RadioShack) is engaged in the retail sale of consumer electronics goods and services through its RadioShack store chain.

The stock is down substantially on a pre-announcement which obviously wasn’t very good news. Here’s a quick snippet to summarize the report:

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RadioShack Corp. shares plummeted 29 percent morning trading. The company announced it beat fourth quarter revenue expectations, but will miss profit estimates due to selling smartphones at lower prices. The Shack explained, “The Company’s results for the fourth quarter are due in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models.” CEO Jim Gooch said the company is moving towards more profitable sales from Verizon and AT&T .

Source: WALL ST. CHEAT SHEET via Yahoo! Finance -- 12 Super Hot Stocks: RadioShack Drops 30%, Mattel Pops 5% and Pfizer Holds Steady, written by Eric McWhinnie.
---

Icky...

Let’s look to 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 single data point down to the $7 level on the news today. On the vol side, we can see the 50% pop in the implied. What’s interesting here is that while the news was unexpected, it’s now out. Normally. No matter what the news on earnings (i.e. good or bad), the vol dips as the event is over and digested in the underlying. It’s that elevated vol that caught my attention.

Let’s turn to the Skew Tab.



We can the front is elevated while the skew shapes are all similar. According to the RSH investor relations website, the next actual earnings report is due out on 2-21-2012, which is after Feb expiry and in Mar. Tricky…

Finally, let’s turn to the Options Tab.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see the vols across the top per expiry: 73.45%, 63.70% and 57.92% for Feb, Mar and Apr, respectively. Again, earnings are in the Mar expiry. The 52 wk range in IV30™ [31.30%, 72.91%], so the level today is fast approaching the annual high – it’s in the 86th percentile. The Feb sigma is actually above the annual high in IV30™.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 1-31-12

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Monday, January 30, 2012

RenRen (RENN) - If the Facebook IPO Hype Isn't Enough, Try "China's Facebook."

RENN is trading $6.09, up 15.9% with IV30™ up 19.9%. The LIVEVOL® Pro Summary is below.



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Renren Inc. (Renren), formerly Oak Pacific Interative, incorporated in February 2006, is a social networking Internet platform in China. Renren generates revenues from online advertising and Internet value-added services (IVAS).

This is a vol note along with order flow. The news pushing the volume, vol and stock is quite simply, Facebook. Here's a news snippet with some interesting comps:

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According to multiple reports, the online social media giant Facebook is expected to file for its much-anticipated IPO next week, seeking a valuation of between $75-$100 billion. It has also been estimated that the company generated revenue somewhere in the range of $4.0-$4.5 billion in 2011. So, should Facebook start with a market cap of $87.5 billion -- the mid point of what is expected -- and if it generated revenue of $4.25 billion last year, this would give it a P/S of about 20.5x. Its sales in FY11 were said to more than double from 2010's $2.0 billion.

For the sake of comparison, LinkedIn (LNKD) had a P/S of over 38x when it went public back on May 19, 2011. Of course, LNKD has since pulled back, and is now trading with a trailing P/S of around 16x. Renren (RENN), which is known as "China's Facebook", is now trading with a P/S of about 20x.

Source: Provided by Briefing.com (www.briefing.com)
---

On the news RENN has traded just under 50,000 contracts on total daily average option volume of 3,788. Feb 6 calls have traded more than 10,000x while the Feb 7 put shave traded just under 6,000x.  It seems like the pubic at large is buying premium in RENN -- betting on more huge movement in the near-term.  The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Feb 6 calls and Feb 7 puts are mostly opening (compare OI to trade size). The puts feel like purchases, the calls seem a bit more ambiguous given the trade prices.



The Skew Tab snap (below) illustrates the vols by strike by month.



We can see a noticeable spread between each of the front three months with the front expos showing higher vol. We can also see the front month has a parabolic skew with the upside calls reacting to that order flow -- circumstantial evidence that the calls in Feb are purchases.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



Check out the stock pop over the last two days, up 46.3% as of this writing. On the vol side we can see the implied has popped to outpace the HV20™. IV30™ is up 71.3% (not percentage points) in those same two days.

All in all it's been some pretty fantastical movement (stock and vol) of late. If the IPO Facebook hype isn't enough, try "China's Facebook." Crazy. A lot...

This is trade analysis, not a recommendation.

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Patterson-UTI Energy (PTEN) - Depressed Vol Into Earnings... Or is It?

PTEN is trading $18.51, down 1.3% with IV30™ up 2.9%. The LIVEVOL® Pro Summary is below.



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Patterson-UTI Energy, Inc. (Patterson-UTI) owns and operates fleets of land-based drilling rigs in the United States. Patterson-UTI’s contract drilling business operates in Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, Pennsylvania, West Virginia and western Canada.

This is a vol note on a stock with earnings fast approaching. Before we look at the charts, let's start with earnings vol and stock analysis. The stats for the last eight quarters are included below -- I did this analysis in about 10 seconds using Livevol® Excel (LVE).



In the third column, we can see that the stock hadn't moved by more than $1.00 (in absolute value) for seven consecutive quarters up until the most recent report (10-27-2011).

In the fourth column we can see the level of IV30™ right before earnings. Note that IV30™ as of this writing is elevated to all of those levels and will likely increase as we approach the earnings date.

In the final (right most) column, we can see that selling the one day straddle and buying it back the next day was a winner six out of eight quarters. But, even the dates when the straddle moved more than implied, the difference was single digits (in percent terms).

Let's turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



It's the vol portion that caught me eye -- the implied is trading below both historical measures. Specifically:

IV30™:50.04%
HV20™: 59.03%
HV180™: 59.42%

The 52 wk range in IV30™ is [31.26%, 79.89%], putting the current value in the 39th percentile... with earnings approaching. Again, note that the IV30™ is higher than previous earnings dates -- so this is a convoluted picture of depressed implied to historical measures and to its own history (the percentile), yet somehow elevated to prior earnings periods. Very, very, very weird.

Let's turn to the Skew Tab.



Nothing special here -- we can see that the front is elevated to the back due to the earnings announcement. Other than that, the skew shape is pretty "normal."

Finally, let's turn to the Options Tab.



We can see that Feb is priced to 53.3% vol while Mar is priced to 48.15%. The ATM (19 strike) straddle in Feb is quoting $1.75 x 1.95.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 1-30-12

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Friday, January 27, 2012

Trading Option Skew

This is a follow up to the "Understanding Option Skew" article I wrote: Understanding Option Skew -- What it is and Why it Exists. Click on the title to read the article.

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The next step, after understanding the basics of analysis, is to understand the impact and usability in the context of a trade. I’ll use another historical article to demonstrate this point.

Now that we understand option skew, let’s see how it moves intraday with order flow and then witness one of the most interesting phenomenon about the option market – price discovery.

Trading Option Skew
On 8-20-2010, I wrote an article for TheStreet (OptionsProfits) about BMC, subsequently published on Yahoo! Finance. You can read TheStreet article here: An Unusual Trading Opportunity.

Often times option order flow focuses on one strike (or a group of strikes) and the volatility for that single strike (or group of strikes) changes in response to those trades while the surrounding strikes (or other months) don’t react as quickly. A period of time exists where the options go through price discovery and in that window of time, trading opportunities arise due to skew irregularities. On 8-20-2010, BMC presented such an opportunity.

Order Flow
In the first hour of trading on 8-20-2010, BMC had traded over 4,500 contracts on total daily average volume of just 1,096. In particular, the September 37 calls traded 2200+ times; substantial buying interest. Let’s look to the Skew Tab at that time:



Rather than a normal shaped skew, with each higher strike trading at lower vol than the one higher, what we can see is that the Sep 39 and 40 calls were trading with higher vol than the Sep 38 calls, based on the aggressive long order flow. Or, maybe more clear, what we can see is that the Sep 38 calls had not responded yet.

Price Discovery
This moment in time is the price discovery for the options. One could bet that either the Sep 38 calls would rise in volatility to straighten that line out, or the Sep 40 calls would drop down in vol to straighten the line out. Since we don’t know which one will occur – this was an opportunity to buy the Sep 38 calls (29.5 vol) and sell the Sep 40 calls (31 vol) in anticipation of convergence back to “normalcy.”

Trading Impacts
By the close of the next trading day, if you bought the spread on 8-20-2010 and sold it on 8-21-2010, the spread would have made ~$0.08 on a $0.45 bet (taking out the effect from delta) strictly from the vol. That’s 16.67% in one day on a pure vol scalp. Not too shabby…

This is one real world example that demonstrates how understanding skew and how it “normally” looks can turn an otherwise meaningless chart into a substantial trading opportunity. Skew trades are one of a few type of strategies I consistently search for. Often times it’s large one sided order flow that is the first indicator to a potential skew trade.

This is trade analysis, not a recommendation.

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Continental Resources (CLR) - Depressed Vol on Earnings Mover into Earnings Date

CLR is trading $80.98, up small with IV30™ down 0.8%. The LIVEVOL® Pro Summary is below.



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Continental Resources, Inc. is an independent crude oil and natural gas exploration and production company with operations in the North, South and East regions of the United States.

CLR caught my attention because the implied is depressed to my two favorite historical realized measures while earnings are due out right after Feb expiry. Let's start with the Charts Tab (6 months) is 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 nice run up of late from mid $40's to now over $80 in just ~four months. In that same time period, the implied has dipped from the mid 70%'s to the low 40%'s. As of this writing the implied is trading well below the HV20™ and HV180™. Specifically:

IV30™: 42.55
HV20™: 54.19
HV180™: 54.46

Looking back to the stock chart, we can see an over $8 pop on 1-25-2012.  Here's a news snippet from that day:

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What: Shares of oil and natural gas exploration company Continental Resources (NYSE: CLR ) are gushing higher by 10% today following an update on the company's fourth-quarter output.

So what: The fourth quarter was kind to Continental. The company saw its production rate increase by 57% to 75,219 barrels of oil equivalent per day. It also increased its proven reserves by 39% to 508 million barrels of oil based on results from drilling in the Bakken shale region (of which it is the largest petroleum leaseholder) and in the Anadarko Woodford region in Oklahoma. The company also noted that it would hold off on drilling natural gas wells in the Bakken Shale region until at least 2014 because of the low price currently associated with the fuel. Continental's positive outlook also resulted in Standard & Poor's raising the company's debt level one notch to BB+.

Source: TheMotleyFool.com via Yahoo! finance -- Continental Resources Shares Popped: What You Need to Know, written by Sean Williams.
---

That's pretty good news, and the stock reaction has artificially elevated the HV20™ (and thus the implied looks depressed to that measure). Still, the 52 wk range in IV30™ is [33.74%, 74.54%], putting the current level in the 21st percentile (annual).

Let's turn to the Skew Tab.



There's actually not a whole lot going on here -- the skew shape is normal and all of the front three expiries show similar shapes. We can see that the ATM vol in Mar is elevated to the other months -- that's due to earnings which are due out on 2-22-2012.

Let's turn to the Options Tab.



We can see the ATM straddle in Mar is priced to ~43.50% which is just a touch above the IV30™. For the two days before earnings to the day after for the last two earnings cycles CLR has moved from $58.65 to $65.44 and from $65.38 to $54.20 for the Nov 2011 and Aug 2011 earnings reports, respectively. That's a mouth full -- the point being, the stock moved fairly substantially surrounding earnings the last two cycles.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 1-27-12

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Thursday, January 26, 2012

InterDigital (IDCC) - Elevated Vol Finally Lets Up; Vol Nears Annual Low After Stock Gap

IDCC is trading $36.45, up 1.1% with IV30™ down 2.9%. The LIVEVOL® Pro Summary is below.



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InterDigital, Inc. (InterDigital) is a holding company, and its various subsidiaries engage in technology research and development activities or in the prosecution, maintenance, enforcement, and licensing of patents.

This is a vol note on a stock I have written about a lot. I've included the links below -- the titles alone kinda tell the story:

11-28-2011: InterDigital (IDCC) - Elevated Vol... Again... Again...
11-7-2011: InterDigital (IDCC) - Elevated Risk, Calendar Vol Diff; Risk Building Again
7-12-2011: InterDigital (IDCC) - Elevated Vol to Wings in Front
7-19-2011: InterDigital (IDCC) - Elevated Vol Portended Company News

So basically, vol has been elevated and the stock has moved with enormous volatility. The 52 wk range in stock price is [$34.37, $82.14] and the 52 wk range in IV30™ is [39.03%, 139.61%]. The current IV30™ is in the 10th percentile (annual).

Let's turn to the Charts Tab (one year), 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 the tendency of the stock to gap -- both down and up. Sometimes it's earnings related, sometimes... it's not. This company, as the description reads, engages in "the prosecution, maintenance, enforcement, and licensing of patents." It's the valuation of its patent portfolio that has lead to many of the wild swings in the stock price.

The news from 1-24-2012 (the latest stock gap down) is... not good... here's a snippet:

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Shares of the technology license wrangler were set to open about 17% lower this morning. The company just told investors that its strategic review failed to scare up any buyers of its wireless patents over the past six months.

So there won't be a sudden gold rush; it's back to business as usual. Chairman Terry Clontz manages to put a positive spin on the failed sale, because it "helped to reaffirm our belief in the breadth and depth of the patent portfolio, the strength of the R&D team, and our technology vision for the future."

It's his job to stay positive, of course. The reality is a bit grimmer: The real gold-rush days of patent sales are now firmly behind us, and InterDigital missed the starting gun.

Source: TheMotleyFool.com via Yahoo! Finance -- Sorry, InterDigital -- You Missed the Starting Gun, written by By Anders Bylund (TMF Zahrim).
---

Yikes... It seems that both the stock gap down and the dropping vol make sense. This is a great example of how a stock can go down and vol may NOT go up.

Looking to the vol portion, we can see that the IV30™ has been dipping hard for the last several months and has continued that drop today.

Let's turn to the Skew Tab, below.



The most notable phenomenon I see is that IDCC exhibits an upward sloping skew to the OTM calls. That's not "normal" skew for the majority of stocks and reflects upside risk (potential) that's greater (more likely) than the downside, per the option market.

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



The next earnings release seems to be scheduled for late Feb but outside Feb expiry. Having said that, the Mar options are priced just 0.6 vol points above Feb. All in all, IV30™ priced to the 10th percentile (annual) and dipping, and with earnings due out, seems... interesting.

This is trade analysis, not a recommendation.

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J.C. Penney Company (JCP) - Overhaul and EPS Guidance Push Stock and Vol; Skew Bends

JCP is trading $38.32, up 11.8% with IV30™ up 9.6% as of ~10:40am EST. The LIVEVOL® Pro Summary is below.



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J. C. Penney Company, Inc. (jcpenney) is a holding company. The Company is a retailer, operating 1,106 department stores in 49 states and Puerto Rico as of January 29, 2011.

The stock is popping based on a bunch of news. Here are some headlines, which actually suffice:

-- J.C. Penney jumps after saying 2012 EPS may beat at 2010 earnings
-- J.C. Penney unveils new prices, logo, store design
-- jcpenney Unveils Long Term Financial Outlook at Day Two of Launch Event in New York City

This overhaul ‘n stuff ‘n stuff has popped the stock near an annual high and has pushed the vol as well. Let’s turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



On the vol side, we can see that while the implied has popped today, it’s still considerably below its recent highs in the last 6 months. In fact, the 52 wk range in IV30™ is [31.87%, 66.21%] – that puts the current level at the 29th percentile (annual). We can also see the stock pop today on the chart – this is a six month high. The 52 wk range in stock price is [$23.14, $40.23].

All of this is semi-interesting, but the attention grabbing phenomenon lies in the skew chart.



The skew in Feb has turned parabolic, with the upside skew bid to the news and the order flow. The next earnings release for JCP is 2-24-2012, which is after Feb expiry. That means the Mar options have an embedded vol event that Feb does not. Tricky…

The most obvious vol diff between the front two months is the upside. I’ve circled the divergence that has formed given that Feb has the parabolic shape, while Mar is “normal”, in that the upside skew is lower than the ATM..

Let’s turn to the Options Tab for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. I can say that the ATM vols are ~44.2% and ~41.5% for Feb and Mar, respectively. But, looking at the upside skew, the vol difference increases rather substantially.

This is trade analysis, not a recommendation.

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