Thursday, July 5, 2012

MAKO Surgical (MAKO) - Vol Rising, But Why?...

MAKO is trading $25.41, down 2.1% with IV30™ up 7.8%. The LIVEVOL® Pro Summary is included below.


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MAKO Surgical Corp. (MAKO) is a medical device company that markets its robotic arm solution and orthopedic implants for orthopedic procedures called MAKOplasty. The Company offers MAKOplasty, a surgical solution that enables orthopedic surgeons to treat patient specific, osteoarthritic disease.

This is a vol note, specifically rising vol. I found MAKO using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ LTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) 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), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The MAKO Charts Tab (six months) is included 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 large stock drop on 5-8-2012 off of earnings released the prior day, AMC. The stock dropped from $41.40 to $26.27 on that single day (down 37%) and continued to fall for the next several days down to $21.29 on 5-14-2012 (total drop off 49%). Here's a news snippet covering that drop:

What: Shares of medical device company MAKO Surgical (Nasdaq: MAKO ) sank a staggering 35% on Tuesday after its quarterly results and outlook disappointed Wall Street.

So what: MAKO's stock has risen nicely in 2012, but lower-than-expected first-quarter sales -- $19.6 million versus the consensus of $23.7 million -- coupled with a full-year guidance cut is forcing Mr. Market to sober up quickly. While management's outlook isn't drastically lower, investors are nervous that slowing hip utilization trends set the company up for even more misses down the road.

Source: The Motley Fool via Yahoo! Finance; Why MAKO Surgical Shares Got Whacked, written by Brian D. Pacampara.

Since then the stock has found a sort of quiet period, finding an equilibrium (at least temporarily) in the $25 range.

On the vol side, we can see how the implied is now elevated to both the short-term and long-term historical realized vols. The vol comps as of this writing are:

IV30™: 84.11%
HV20™: 53.79%
HV180™: 75.68%

Due to the abrupt spike in HV20™ from the earnings gap, that vol chart doesn't do a great job of illustrating the recent rise in IV30™. To help visualize the implied's move of late, I've included a six month chart of just IV30™, below.

It's that recent rise in vol that really caught my attention.

Let's turn to the Skew Tab, below.

We can see that Aug shows the highest vol in the ATM options. The next earnings release for MAKO is due out in the Aug cycle. I do note that the OTM puts in Jul are priced higher than Aug (in terms of vol).

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

Across the top we can see the monthly vols are priced to 80.38%, 87.42% and 72.06%, respectively for Jul, Aug and Nov. Ultimately, there's a lot of speculation with this stock -- it's small and sales are small but it is seen by some as a revolutionary firm. High vol makes sense, but I'm not sure what has caused the vol to rise so abruptly of late other than a class action lawsuit deadline. The class action surrounds the stock drop and purported misrepresentations or failures to disclose information... But I don't think that's really affecting the vol...

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