Tuesday, September 20, 2011

MBIA (MBI) - Elevated Vol, Ripping Stock, Earnings Vol and Skew Comps

MBI is trading $8.77, up 4.2% with IV30™ down 2.3%. The LIVEVOL® Pro Summary is below.


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MBIA Inc. (MBIA) together with its subsidiaries, operates the financial guarantee insurance business.

The stock has been ripping of late, up from a low of $5.99 on 8-22-2011 to now nearly $9, less than a month later; that's 46% (to $8.77). 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).

I've highlighted two phenomena:
(1) The stock rise
(2) The vol levels (comps).

We can see that the IV30™ is substantially elevated to the HV20 and HV180, although the IV30™ has dipped with the stock price move up.

Let's turn to the Skew Tab.

We can see a rather pretty skew shape -- normal in all respects. The Nov vol is above Oct due to earnings in the Nov cycle. I did highlight the 6 strike -- the vol in Oct is right around the same level as Nov in both the 6 and 5 strikes. Keep in mind, it's Nov that has the earnings cycle (I think). Hmm...

Finally, the Options Tab is included below for completeness.

Possible Trades to Analyze
Selling that Oct downside vol given the recent run up and still elevated vol to HV measures seems reasonable. Covering the short vol in Oct with similarly priced earnings vol in Nov is also a possibility.

Taken a step further, selling the Oct vol and covering with Nov on a diagonal lowers the premium paid (though it does risk strike price difference). An example could be owning the Nov 5 puts against the Oct 6 puts... Of course, a catapulting stock into the small single digits on bad news makes that rather... ugly...

This is trade analysis, not a recommendation.

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