Wednesday, September 21, 2011

Lender Processing Service (LPS) - Elevated Vol and Earnings Date Ambiguity

LPS is trading $15.50, down 3.3% with IV30™ up 7.0% as of ~11:10am EST. The LIVEVOL® Pro Summary is below.


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Lender Processing Services, Inc. (LPS) is a provider of integrated technology and services to the mortgage lending industry, with mortgage processing and default management services in the United States.

The company caught my eye for two reasons, today:
(1) The implied vol is elevated relative to both the short-term and long-term historical realized vols.
(2) The vol in Nov is below Oct, but Nov likely has the earnings release which likely falls just after the Oct option cycle expires.

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

We can see the stock has plummeted over the last six months, falling from a high of $32.79 on 4-7-2011 to now $15.50. That’s a 53% decline. The 52 wk low is $15.10 and that level was reached just a few days ago, on 9-12-2011.

On the vol side we can see that the implied trades above both of the historical measures almost all the time. As of now that vol diff has opened up as the HV20 is declining and IV30™ has popped today. Specifically:

IV30™: 69.77
HV20: 54.20
HV180: 39.48

The recent stock movement has been even more muted than the last twenty trading days, with an HV10 of 45.67.

Let’s turn to the Skew Tab.

The shape is similar for both of the front two months and it’s generally “normal.” What is interesting is that Oct is elevated (slightly) to Nov. The last two earnings releases at or around this date for LPS were 10-22-2009 and 10-28-2010. Last year the 10-28 release was preceded by a 7-22 release. This year LPS had earnings on 7-25, so it’s a reasonable bet (but not a sure thing) that earnings this year will fall after the 10-22 Oct options cycle.

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

I wrote about this one for (OptionsProfits), so no specific trade analysis here. But, I will say that the elevated Oct vol relative to Nov is compelling if in fact the earnings report is after Oct expo. The vol diff with Oct GTE Nov opens up to the downside puts. I have a call in to the LPS investor relations dept., but no response back yet (I left a voicemail).

This is trade analysis, not a recommendation.

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