Tuesday, September 27, 2011

SAP (SAP) - Elevated Vol, Depressed Earnings Vol Phenomenon

SAP is trading $51.60, up 3.4% with IV30™ down 6.1% as of ~11:15am EST. The LIVEVOL® Pro Summary is included below.


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SAP AG (SAP) is engaged in enterprise applications in terms of software and software-related service revenue. The Company’s core business is selling licenses for software solutions and related services to deliver a range of choices fitting the varying functional needs of its customers.

Let’s start with 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 the recent stock pop, which seems to simply be the systematic risk – up with the market. On the vol side we can see that the implied is trading above both the short-term and long-term historical realized vols. Specifically:

IV30™: 44.35
HV20: 35.64
HV180: 36.16

I see a recent post from Briefing (http://www.briefing.com/) regarding the next earnings release: “Next earnings release: Oct 26 before market, confirmed. Capital IQ estimate: 0.60”

More on that in a sec… Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vols.

This is a great example of a phenomenon that’s starting to become common in companies with earnings due out in the Nov cycle due to the "fear factor" in Oct and the recent wild swings. The front month vol and second month vols are nearly identical, but the downside skew is more bid in the front. In English, the opportunity to own earnings vol for less than non-earnings vol to the downside puts is possible. Tricky…

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

I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. I will say that given that the vol is elevated in SAP, being a bigger seller than buyer might be an interesting vol position to examine. But, the vol diff spread between the earnings and non-earnings months (i.e. Nov and Oct, respectively) is also interesting. Note that the 52 wk range in SAP is [$46.24, $67.71], so perhaps that can act as a guide for any downside positions.

This is trade analysis, not a recommendation.

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