Friday, September 28, 2012

Post Market Report: 9-28-12

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Ocwen Financial (OCN) - Multi Year Highs in Vol and Price as Earnings Approach


OCN is trading $27.34, down 1.5% with IV30™ up 2.5%. The LIVEVOL® Pro Summary is below.



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Ocwen Financial Corporation (Ocwen), through its subsidiaries, is a provider of residential and commercial mortgage loan servicing, special servicing and asset management services.

This is a vol note, specifically a firm that is breaching a new multi-year high in vol.  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 impressive rise in price rising from $15.80 on 3-28-2012 to now over $27. As of this writing, the stock is up 73% over the last six months. We can also see that in the last earnings cycle (check out the blue "E" icon) OCN moved higher on the news. The 52 wk price range is [$11.72, $28.66], so the stock is nearing an annual high, and in fact, that annual high is a multi-year high. But the story gets more compelling when we turn to the vol.

On the vol side we can see how elevated the implied has become -- shooting straight up from 35.96% on 9-21-2012 to now just under 59%. That's a 63.5% rise in IV30™ in just seven calendar days. The only news story I could find was one from Briefing on 9-19-2012. I've included that snippet below:

---
Compass Point is initiating coverage of NationStar Mortgage (NSM) with a Buy and a $38 tgt, Walter Investment (WAC) with a Buy and a $46 tgt, and Ocwen Financial (OCN) with Buy and a $33 tgt. Firm says while these names have had a huge run lately and valuations have been stretched, the longer-term opportunity for the special servicers outweighs the near term volatility that may occur. Each of these names will likely participate in the secular shift away from the traditional servicing model, because there is still a massive backlog of distressed mortgages that need to be cleared, Basel III will limit banks ability to justify keeping large servicing portfolios, and regulatory compliance has become costly and creates operational risk.

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

So there you go... What's interesting about the vol is that this 59% (ish) level is in fact not just an annual high, but a two year high (at least two years).

Let's turn to the Skew Tab.



We can see that Oct is depressed to Nov -- that's a reflection of the next earnings report which is due out in late Oct (but after Oct expo). The back two months do show a rather flattish skew, which in terms of the broader market isn't "normal." The option market does not reflect greater downside risk than upside potential -- an interesting phenomenon to note given the rise in equity price and vol.

You can read about skew and why it exists here: Understanding Option Skew -- What it is and Why it Exists.

Finally, let's turn to the Options Tab.



Across the top we can see the monthly vols are priced to 53.16% and 70.80% for Oct and Nov, respectively. Note that as we move closer to Oct expo, two things will likely happen.

1. IV30™ will likely rise as the weighted average turns to focus on Nov (and earnings).
2. Nov vol will rise as the "non-earnings" days go away and the expiry turns more into a more concentrated earnings event.

In English, this multi-year high in the implied is likely to rise -- and rather significantly.

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Pre-Market/Post Market: 9-28-12

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Thursday, September 27, 2012

Post Market Report: 9-27-12

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MetroPCS (PCS) - Takeover Spec Pushes Vol and Skew; Earnings Vol Forgotten?


PCS is trading $11.89, up 5.7% with IV30™ up 19.4%. The LIVEVOL® Pro Summary is below.



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MetroPCS Communications, Inc. (MetroPCS Communications) is a facilities-based wireless broadband mobile communications provider in the United States, including the Atlanta, Boston, Dallas/Fort Worth, Detroit, Las Vegas, Los Angeles, Miami, New York, Orlando/Jacksonville, Philadelphia, Sacramento, San Francisco, and Tampa/Sarasota metropolitan areas.

This is a vol note -- specifically spiking IV30™ on the day. We'll examine the impact of he day on the skew and compare it to yesterday as well. But, 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 awesome price appreciation since the earnings announcement in late July. On 7-25-2012, the stock closed at $6.28, so as of this writing the stock is up over 89%.

On the vol side we can see a fairly muted move in the implied up until the last few days. On 9-20-2012 the IV30™ closed at 45.24%. As of this writing that measure is up nearly 42%. The stock in that same time frame is up small (ish) from $11.19 to $11.89, or just 6.25%. In English, the option market reflects substantially higher risk as the equity price has been sitting relatively still.

Let's turn to the Skew Tab today (first) and then below that,the skew from the day before (9-26-2012).





We can see quite clearly how the front month (the red curve) has spiked today above Nov (yellow curve). And the news is a report from Bloomberg that PCS has been in talks with suitors (for a takeover) -- specifically naming S, DISH and DTE. Source: MetroPCS Jumps After DealReporter Renews Buyout Speculation; written by Scott Moritz.  I also note the upside calls in Oct are priced to higher vol than those in Nov.

Finally, let's turn to the Options Tab, for completeness.



Across the top we can see how Oct and Nov vol have now evened out with Oct up 13 vol points (not percent) and Nov was up just 2.9 vol points. This is noteworthy for a very simple reason: the next earnings release for PCS is due out in Nov (and not Oct) and now the two months share the same vol. Very, very, tricky... Looking to the upside calls, the Oct/Nov 13 call spread (for example) shows a vol diff in favor of Oct (without earnings). Hmmm....

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Pre-Market/Post Market: 9-27-12

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Wednesday, September 26, 2012

Post Market Report: 9-26-12

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Big Lots (BIG) - Depressed Vol in Gapping Stock with a Downturn Trend


BIG is trading $29.69, up 0.3% with IV30™ up 0.5%. The LIVEVOL® Pro Summary is below.



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Big Lots, Inc., through its wholly owned subsidiaries, is a North America's closeout retailer. At January 28, 2012, the Company operated a total of 1,533 stores in two countries: the United States and Canada.

I found BIG using a real-time custom scan. This one hunts for low vols. But this one is compelling b/c of how violently the stock has gapped in the last six months.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV60™ GTE 1
IV60™ - HV60™ LTE -8 and GTE -40
HV180™ - IV60™ GTE 8
Average Option Volume GTE 1,200
Industry != Bio-tech

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro&#8482.



The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and want to avoid bio-techs (and their crazy vol).

The BIG Charts Tab is included (below). The top portion is the stock price, the bottom is the vol: IV60™ - yellow vs HV60™ - blue vs HV180™ - pink.



On the stock side we can see those two awesome gaps down in the last six months. on 4-24-2012, the sock dropped from $45.71 o 34.71 (-24%) and on 8-23-2012 from $38.84 to $30.76 (21%). The second drop was on an earnings release. The first was on a changed outlook (same stores quarterly sales revised down). I also note the recent down trend in stock price. On 9-14-2012, the stock traded as high as $31.90 and closed at $31.83.  today, we're at $29.69.

On the vol side we can see how the IV60™ has remained fairly calm throughout the last six months and is in fact kinda "lowish" right now relative to the recent past. The HV60™ is artificially elevated b/c of the earnings cataclysm. Having said that, he HV10™ is still elevated o IV60™, so there is a reasonable vol diff here to investigate. The comps are:

We can see:
IV60™: 32.60%
HV60™: 53.65%
HV180™: 50.62%
HV10™: 32.89%

The IV30™ is in the 34th percentile (annual) -- so it's also a bit low relative to the annual range and this is as the stock has started a downtrend.

Let's turn to the Skew Tab.



We can see a normally shaped skew, with the two months lying on op of each other. The next earnings cycle is due out in Dec, so neither of the front two expiries have that vol event. I'm not sure when the outlook numbers come out though, and given the reaction in April, I'd look that date up before trading this name.

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 31.59% and 31.69% for Oct and Nov, respectively. It's an interesting position to analyze going long Nov juice and selling Oct juice in the hopes that either, a big move comes after Oct, or no move comes but the vol rises in Nov given that it is depressed relative to the historical measures.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 9-26-12

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Tuesday, September 25, 2012

VeriFone (PAY) - Depressed Vol as Stock Gaps Down


PAY closed at $30.02, down 3.4% with IV30™ up 1.4%. The LIVEVOL® Pro Summary is below.



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VeriFone Systems, Inc. (VeriFone), formerly VeriFone Holdings, Inc., is a holding company for VeriFone, Inc. The Company is engaged in the secure electronic payment solutions.

This is a vol note, but this time low vol. I found PAY using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV60™ GTE 1
IV60™ - HV60™ LTE -8 and GTE -40
HV180™ - IV60™ GTE 8
Average Option Volume GTE 1,200
Industry != Bio-tech

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and want to avoid bio-techs (and their crazy vol).

The PAY Charts Tab (vol only) is included (below). The top portion is the stock price, the bottom is the vol; (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).



On the stock side we can see the abysmal returns over the last six months. On 3-26-2012 this was a $52.03 stock. As of this writing (the close today), the stock is down more than 42%. Included in this six month stock chart are two earnings reports -- both of which saw gaps down off of the news. Basically, not good results for PAY shareholders recently. It's that performance with the vol that caught my attention.

On the vol side we can see how depressed the IV60™ is relative to the two historical realized measures HV60™ and HV180™. In fact, even HV20™ and HV30™ are considerably higher than the 60-day implied. The vol comps are:

IV60™: 41.00%
HV20™: 62.21%
HV30™: 53.84%
HV60™: 58.03%
HV180™: 52.16%

So we can see that across the board the IV60™ is well depressed to the recent and long-term stock movement.

Let's turn to the Skew Tab.



The red curve represents Oct while the yellow curve represents Nov. We can see a rickety albeit normally shaped term structure, with the Nov options priced to higher vol than Oct. I believe that the next earnings release should be in Dec, so the elevated Nov vol is not a reflection of that vol event.

Finally, let's look to the Options Tab (below).



Across the top we can see Oct vol is priced to 38.62% while Nov is priced to 40.59% -- so a slight elevation from Nov to Oct. Ultimately, the low vol (both IV60™ and IV30™) are compelling. Even though we're looking further out, the IV30™ is in the 27th percentile (annual) -- granted, this is right after earnings, so that number isn't necessarily weird.

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Post Market Report: 9-25-12

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Pre-Market/Post Market: 9-25-12

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Monday, September 24, 2012

Post Market Report: 9-24-12

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MIPS Technologies (MIPS) - Dipping Elevated Vol; Upside Skew Reverses with Earnings Month


MIPS is trading $7.31, down small with IV30™ down 9.8%. The LIVEVOL® Pro Summary is below.



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MIPS Technologies, Inc. (MIPS), incorporated in June 1992, is a provider of industry-standard processor architectures and cores for digital home, networking and mobile applications.

This is a vol note -- specifically dipping elevated vol. Let's start with the 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 a rather bumpy ride, though I do note the vertical axis scale -- the increments are in $0.20 pieces. Over the last month, MIPS has risen from $6.32 to now just under $1 higher -- so 15.7% higher. But, the real issue at play is the vol.

We can see that for the last several months, MIPS implied has traded above both the short-term and long-term historical vols. What I note now, however, is how that normally elevated vol is dipping. In English, that spread of implied to historical is shrinking as the stock has made its nice run up in Sep. Then there's the issue of earnings -- which are due out after Oct expo (so in Nov) -- that's a projection, not a fact.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.



The red curve represents Oct, while yellow is Nov. We can see an awesome upside skew shape to both of the font months - the option market reflects greater upside risk (potential) than downside risk in the near and medium term options. Even more interesting is that the Oct upside calls are priced to higher vol than the Nov OTM options while the next earnings release is due out in Nov. So, in English, while Nov has the embedded vol event, the Oct OTM options are priced higher (in terms of vol). All of this is occurring as the implied is dipping -- hmmm....

Finally, let's turn to the Options Tab for completeness.



Across the top we can see that Oct vol is priced to 73.2% while Nov is priced to 75.88%. But, looking more closely at the chain, we can see that the Oct/Nov 9 call spread (for example), shows a 6 point vol diff -- Oct is priced above Nov. In English, we can put a real value on the vol diff to the upside skew we observed in the Skew Tab. Very cool... And... note worth, IMHO.

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