Thursday, November 8, 2012

International Game Technology (IGT) - Massive Upside Earnings Bets Roll In For Today’s Announcement; Vol Reaches Multi-year Highs

IGT is trading $12.66, down 1.8% with IV30™ exploding up 35.9%. The LIVEVOL® Pro Summary is below.


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International Game Technology (IGT)is a global gaming company specializing in the design, development, manufacture, and marketing of electronic gaming equipment and systems products, including online and mobile solutions.

The company has earnings due out today AMC but it caught my attention because of the high option volume (relative to average) scan – it’s the top result in the entire market – as well as the vol explosion.

Let’s turn to the Stats Tab and day’s biggest trades sections, below. We can see that IGT has traded nearly 18,000 contracts on a total daily average of just 1,345. Calls have traded on a 4.5:1 ratio to puts.

The action is in the front month 13 calls – and that’s really what caught my eye. We can see from the day’s biggest trades (above) that essentially every large trade today has been in those calls. The flow looks long to me based on circumstantial evidence of vol rising and the prices relative to the NBBO.

Let’s turn to the Options Tab.

I’ve highlighted the Nov 13 calls – check out that volume which is nearly 11,000 in the first four hours of trading in a stock that had a total existing OI of just 57,000 before today. We can also see the existing OI in that line is substantially smaller than the trade size – these are opening positions.

While the option volume is more than 1300% its daily average in the first four hours of the day, the stock volume is still below the daily average. If we extrapolate the stock volume from this point to the end of the day, it will be a heavy stock trading day, but maybe in 120%-130% higher than average level – nothing close to the 2000% range the option volume will likely see.

Let’s turn to the IGT Charts Tab below (one year). The top portion is the stock price the bottom is the vol (IV30™ - red).

On the stock side we can see some pretty poor performance over the last six months. But even more eye popping is the stock move off of the last earnings result in mid-July (circled in yellow). The stock dropped from $14.69 to $11.76 or a 20% drop in a day.

On the vol side we can see that the IV30™ hit 52.53% right before that earnings announcement and at the time, that was highest level IV30™ had reached in this time period we’re examining (note that I have circled that vol level).

Today, however, the vol is absolutely exploding, with IV30™ up 35%. The 52 wk range in IV30™ is [28.36%, 52.56%], so the level today is well into new annual high territory. In fact, the level today is a multi-year high.

I’ll skip the Skew Tab as the image isn’t needed – Nov is extremely elevated to Dec. In fact, we can look at the top of the Options Tab (above) and see that Nov vol is priced to 85.33% up nearly 30 vol points today, while Dec is priced to 48.77%, up 7.5 vol points.  One thing I do note, and it's a big one, the skew in the Nov 13 calls does not show a kink -- so there is no price discovery going on.  That might mean two-sided trading... just a "might."

Ultimately this is a fascinating stock today. Earnings are due out AMC and vol has exploded to a multi-year high while the OTM front month calls are trading size and the last earnings report saw a large gap in the stock price the next day. This is definitely one to watch.

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