Monday, November 12, 2012

McMoran Exploration (MMR) - Elevated Vol Pattern Persists, But Risk in Dec Keeps Rising

MMR is trading $12.72, down 2.1% with IV30™ down 5.6%. The LIVEVOL® Pro Summary is below.


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McMoRan Exploration Co. (McMoRan) is engaged in the exploration, development and production of oil and natural gas in the shallow waters (less than 500 feet of water) of the Gulf of Mexico and onshore in the Gulf Coast area of the United States.

This is an elevated vol note in a stock which as some peculiar vol patterns that I've discussed before. The implied has reached the level where it makes it a story again...

Let's start with the Charts Tab (one year), 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 a rather bumpy ride over the last year, though endpoint-to-endpoint the stock price change isn't that large. The 52 wk range in stock price is [$7.76, $16.57]. This one is all about the vol, though...

On the vol side we can see how elevated the implied is to both the short-term and long-term historical realized vol measures. In fact, that's just sort of the norm for this name - a vega sellers dream.

But, even more apparent is the recent vol spike. On 10-22-2012 the IV30™ was 61.70%. Today the implied is sitting at 115.87% or an 88% rise in less than a month. Note that the vol has risen during this period even though there was an earnings announcement on 10-19-2012 BMO. The 52 wk range in IV30™ is [58.69%, 122.80%], putting the current level in the 89th percentile.

Let's turn to the Skew Tab-- we'll get a window into when the risk is centered.

We can see how Nov ATM vol is well below the back two expiries. Even more noteworthy, we can see how elevated Dec vol is to Jan. Note hat the next earnings release should be near the week of Jan'13 expo -- so it might actually be in that expiry. The last two Jan earnings announcements were made on 1-18-11 and 1-17-12 and this Jan cycle expires on 1-18-2013. Tricky... even more telling is how elevated Dec is to Jan even with all of that " earnings stuff."

Finally, let's turn to the Options Tab.

Across the top we can see the monthly vols are priced to 70.37%, 115.47% and 101.78%, respectively for Nov, Dec and Jan'13. The risk is in Dec -- let's see what happens. Will the pattern continue -- a stock that shows an implied trading above the realized stock movement, or will the stock finally move abruptly enough to make owning vega the winner?

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