Apple (AAPL) - Part 7 (The End): This Just Isn't the Company it Used to Be... And it Never Will Be Again.

AAPL is trading $467.49, down 5.5% with IV30™ down 5.2%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------

-------------------------------------------------------

This is the seventh and likely final note in a long series surrounding AAPL, which I first started on 12-5-2012. You can read the prior six articles by clicking on the links below -- the titles however kind of do the trick and I will do a re-cap before moving forward to today's news and stock drop.

12-5-2012:
Apple (AAPL) - Have We Moved into a Totally New Volatility Paradigm for This Company? Has Everything Changed?

12-10-2012:
Apple (AAPL) - Everything has Changed. The Old AAPL is No More. The New AAPL is a Riskier Entity and the Market Doesn't Know What that Means Yet.

1-23-2013:
Apple (AAPL) - "Just the Facts Ma'am" -- Well, that Supports the Opinion: "Everything has Changed. The Old AAPL is No More."

4-18-2013:
Apple (AAPL) - This Just Isn't the Company it Used to Be... And it Never Will Be Again.

7-23-2013:
Apple (AAPL) - Earnings Preview Reveals Lots of Information; But There is No More 'Old AAPL' -- That's Not Good or Bad... It Just is.

7-29-2013:
Apple (AAPL) - Post Earnings Analysis; Risk Paradigm Shift Over; Now the Market Gets It

Here's a recap of all of those posts in order from oldest to newest.  But, one thing to keep in mind about today... the stock is down big and the volatility is also down... remember that fact, it matters...

---
12-5-2012:
This is a vol and stock note on the largest company in the world. I see a potential paradigm shift in the way the option market reflects risk in APPL -- and the shift is not trivial. I'll even call on your knowledge of Econ 101 from your college days.

Here's what really caught my eye. The most recent closing low in stock price was on 11-15-2012 when AAPL closed at $525.62. At that time, the IV30™ was rising and hit 32.55%. Shortly thereafter, we can see the stock rise again, only to now start another downward trend. But, with the stock $20 lower then than it is today and in what for all intents and purposes was an absolute free fall from an all-time high (see the chart again), the implied only hit 32.55% on 11-15-2012.

But now, with the stock having already reversed the straight down move from the all-time high, and now headed on a new downward trajectory (after a small recovery), the vol has expanded (increased) significantly more to over 36%. So we see a $20 higher stock price now, with a free fall having ended, yet the implied is now higher than it was during the free fall. In English, the risk reflected by the option market has shifted -- it's higher.

Vol can behave much like demand (in fact, vol is demand for protection (puts) or speculation (calls)), where there can be an increase in quantity demanded (that's moving on the same demand curve to the right) and an increase in demand (which is a totally new demand curve drawn above the prior one). I've included a contrived picture of some "widget" demonstrating the difference in an increase in quantity demanded (moving from one red dot to the other) and an increase in demand (moving from blue Demand curve D to red Demand curve D'), below.



IMHO, AAPL is seeing a new demand curve (i.e. vol) -- we're no longer moving on the same vol curve and have moved to a new (higher) one. Like the difference between an increase in quantity demanded and an increase in demand, AAPL is showing a brand new risk curve -- a new paradigm if you will -- and it reflects higher risk.

This will be an interesting one to watch. If the hypothesis is correct, AAPL will be at elevated vol levels relative to the past in all situations (going up, standing still and going down). Those situations could (should) include earnings.

12-10-2012:
The article today will focus on the same topic -- but with empirical evidence not from the implied volatility side (forward looking), but from the historical realized volatility side (backward looking).

Now to the historical vol measures.  First, I have included the HV180™ chart and below that the HV360™ chart for AAPL over two-years. Note that HV is measured in trading days (not calendar days like implied vol), so HV180™ represents an average of ~9 months of data and HV360™ represents an average of ~18 months of data. So, in English, these are long-term trends not affected by short lived stock volatility.

AAPL HV180™


AAPL HV360™


I've drawn that yellow horizontal line to make it easier to see the high. What we can see here is that AAPL is now at multi-year highs for the very long-term HV180™ and HV360™ measures.

A fair question to ask, is, "how does this compare to the broader market?" Of course, the rationale being, if AAPL is mirroring the overall market, then this is not a firm specific trend, it's a coincidental data point.

Below I have included the same two charts, but have added the long-term HV for SPY as well.

AAPL HV180™ vs SPY HV180™


AAPL HV360™ vs SPY HV360™


I've highlighted the growing vol difference for both measures. The long-term HV measures for AAPL are rising as the SPY long-term HV measures are flattening. It bears repeating that the charts we're looking at here comprise of 9 months and 18 months of closing stock price data -- these are not averages that move easily with the blowing of the wind. These are very long-term measures for the largest company in the world.

The bottom line, in my opinion, whether it's b/c of the loss of Steve jobs, or a variety of other technology specific reasons (or all combined), AAPL is no longer the AAPL we once knew. The implied volatility (option market forward looking measures) bear this out, and the empirical historical stock movement bears it out as well.

1-23-2013:
On the stock side we can see that AAPL is trading near a six-month low if not for a small recent rally into the earnings announcement today.

On the vol side we can see that the implied has been rising into the event, but in sort of empirical yet circumstantial evidence of my prior hypothesis that AAPL is in fact a totally different entity than it was a year ago (or whatever), we can see the implied is trading higher than the last eight earnings announcements. Note the blue "E" icon on the stock chart indicating earnings.

Last eight earnings announcements (IV30™):
Today: 42.27%
12-25-2012: 36.79%
7-24-212: 34.99%
4-24-2012: 40.43%
1-24-2012: 32.35%
10-18-2011: 37.58%
7-18-2011: 32.06%
4-20-2011: 27.51%

The option market is reflecting greater risk into this earnings release than all the ones before (All = last eight quarters) b/c people are staring to catch on. There's more uncertainty, it's scientifically observable (i.e. a phenomenon).

4-18-2013:
We can see the stock has fallen 45% from its all-time high and ~25% since the Dec articles. The stock is now at an annual low and has made consecutive annual lows for the last several trading sessions.

Let's turn to the vol side, where I re-iterate my belief that the old AAPL is no more...



I have highlighted in yellow the IV30™ for the last four earnings cycles and the level as of today. The implied is trading higher than all prior four earnings cycles and is still a few days away from the next earnings release. In fact, though it is not pictured here, the vol is higher than prior five earnings cycles. In English, the vol should continue to climb into that 4-23-2013 date.

So, I see continued annual highs in vol every trading day moving forward until the earnings release barring any reports from the firm or any research firms which sort of break the "silence" of news. But, what about the overall market?

The VIX is sitting at 17.81% today. Here is the VIX on the date of the prior five earnings cycles for AAPL:

1-24-2012: 18.91%
4-24-2012: 18.10%
7-24-2012: 20.47%
10-25-2012: 18.12%
1-23-2013: 12.46%

So, with the exception of last Jan's earnings release, the market vol (VIX) has been higher than the current level while at the same time AAPL's implied into earnings has been rising. So VIX was lower, but APPL vol was higher.

In my opinion, AAPL simply is becoming Microsoft. A massively successful, free-cash flow machine that in many respects is a technology laggard rather than leader. When Bill Gates stepped aside as CEO, MSFT had its issues. With the passing of Steve Jobs, AAPL has its issues too. But the evidence reflects the same conclusions as before with one exception.

Last time I said:
"The old AAPL is no more. And new AAPL is a riskier entity -- so says the option market and so says the empirical historical long-term stock returns.

This is a different company -- and the market doesn't know what that means yet."

Now I say:

This is a different company -- and the market DOES know what that means. That's why it has lost more than $200 billion in market capitalization and continues to breach new highs in volatility even with a lower VIX.

There will be ebbs and flows and certainly AAPL may be due for a bounce -- earnings could be awesome... but this isn't the company it used to be... it just isn't... and it never will be again.

7-23-2013:
The point of all of the stuff before, although I used a great deal of detail, was simply to say that AAPL is a different company than it once was. The price drop and volatility movement show that -- it is tautological.

Now we look at the stock on the day of its earnings release, and we will see yet again, that AAPL is a different company. It is no longer seen as the technology innovator of the world. It is no longer seen as a stock driven by a new product release. It's a $400 billion Goliath, that pays a hefty dividend and just ain't all that sexy anymore -- at least compared to the old days.

Let's turn to the two-year IV30™ chart in isolation, below.



The blue "E" icons represent earnings dates. I have circled the IV30™ levels for the prior seven earnings cycles and as of the close on Monday. Then I've drawn that horizontal line from the current vol level back in-time so it's easy for us to see how depressed the current vol is all prior seven earnings cycles. In fact, on an annual basis, as of Monday's close, AAPL's IV30™ is in the 38th percentile -- so it's depressed to it's own history over the last year by a fair amount (the 50th percentile would be the median).

So what? It ain't about the iPhone 926 or the iPad 1456 or the iGlases 1 or whatever... This is a stock that pays a 2.8% dividend, has announced a stock buy-back and has and HV30™ of 20.27% and an HV60™ of 22.14%. The HV180™ (which covers 180 trading days or ~9 months) is 33.20%. The stock is less volatile and clearly is using it's cash in ways outside of product development (exclusively). There is no more Steve Jobs, and so there is no more old AAPL. That's not good or bad... It just is.

7-29-2013:
[L]et's focus on the last earnings report, and then turn to the option market to complete the picture.

Earnings Results from July 2013
EPS: $7.47 vs. $7.31(est)
Revenue: $35.3B vs. 35B (est)
Gross Margin: 36.9% vs. 36.7% (est)
iPhone Sales: 31.2 million units vs. 26.5 million (est); BUT, average selling price down ~ $32.
iPad Sales: 14.6 million vs. 18 million (est)
New Product Release: ? Coming at end of year?

So those numbers don't really mean anything without some words behind them. First, AAPL's big story for along-time for AAPL was gross margins and they have finally broken below the 40% level (which some think is a 'magical' level). Some of that came from depressed iPhone sales prices even though the number of units sold was higher than expected. But.. it's not what you think. iPhone is losinig market share. Here's a snippet from an in Investors.com article:

---
Apple's (AAPL) share of the global smartphone market shrank in the second quarter as major rivals like Samsung and LG shipped many more units than the iPhone maker.

Market research firm IDC late Thursday reported that worldwide smartphone shipments rose 52.3% over the year-earlier period to 237.9 million units. Apple, however, posted the slowest growth of the top five vendors at 20%. Apple's market share sank to 13.1% from 16.6% a year ago.

Apple remained the No. 2 vendor behind South Korea-based Samsung, which garnered 30.4% market share on unit shipment growth of 43.9%.

Apple smartphone market share at lowest level in 3 years , written by Patrick Seitz.
---

The Tablet market (iPad for AAPL) performed well below expectations. But that's not the big news either (IMHO). The biggest news seems to be that the company again (now for the second year) is saving their "big surprise" product news for the end of the year. Some analysts feel last year's move to do the same was a major mistake and may have cost the firm billions in sales. Well, whatever you think, they're doing it again.

None of this is catastrophic, it's just a reminder that AAPL isn't the same company it used to be.. And btw, at $420 billion in market cap, how could it be?
---

OK... Quite a ride... Now to today:

9-11-2013:
AAPL is down pretty big today and it's based on, well, another disappointing presentation by Tim Cook and team. Here's a snippet from The Motley Fool:

---
Yesterday's iPhone event was supposed to be Apple's moment to shine. It was one of CEO Tim Cook's perhaps final chances to prove that the consumer tech giant can recapture the glory it had when Steve Jobs was around.

Instead, we got more of the same.

•The iPhone 5s has some new features, but it has the same form factor as last year's iPhone 5. That wouldn't be a bad thing if Apple hadn't surrendered market share, going from 17% of the global market to just 13% over the past year.

•The iPhone 5c was supposed to be the entry-level device that would finally open doors for the company with the prepaid wireless carriers here, and the countless carriers abroad, which don't offer hundreds in subsidies in exchange for long-term contracts. No. It's unlocked price of $549 without a contract isn't going to make a difference in a world where entry-level Android smartphones are available for a sliver of that.

•After seeing Samsung -- the company that overtook Apple in smartphone sales -- introduce a smartwatch last week, there was always the hope that the Cupertino taste maker would finally make a big splash in wearable computing. No. It didn't happen.

There are plenty of snazzy features in the iPhone 5s. The camera is dramatically improved, and that's a big thing for many buyers trying to consolidate gadgetry. However, boasting about the more powerful 64-bit processor seems as if it's missing the mark. I've heard people complain about slow PCs, but never slow smartphones. It's a nice feature, but it's not a very marketable one if it's not aiming at an addressable problem.

Source: The Motley Fool via Yahoo! Finance: When Did Apple Lose Its Magic Touch?, written by Rick Munarriz.
---

I've included the updated two-year chart for AAPL. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



The really noteworthy point here today is that while AAPL shares are down, the implied volatility is down as well.  What does that mean?  It means that while the equity market is valuing AAPL lower today based on yesterday's events (by about $20 billion), the option market sees less risk in the firm.  In English, we're continuing to see a sort of equilibrium in AAPL, a settling of the realization that the firm is, yes I'll say it again, not the great innovator of the world anymore.  It's a really big, successful, cash rich technology company which is not leading the world, and is in fact starting to play catch up. They're re-packaging old (but very successful) ideas and that's great, but it's not new.  It's not innovative.  It's not... the old AAPL.

The disruptive mega-cap technology companies are AMZN, GOOG, FB (yeah, I said it) and maybe Samsung.  Whatever the list, AAPL isn't on it.

Now I'm not sure why people are so emotional about this firm -- I use AAPL products, I'm a movie maker and I use an iMac with Final Cut pro (and 10 other incredible applications bundled with it).  My fiance has an iPhone.  We've looked at Apple TV and an iPad.  I really like AAPL products.  But there's nothing remarkably new anymore.

Is China a huge new market?  Of course it is. Is a P/E (TTM) of 11.69 sort of low if China ends up being a windfall?  Yeah, very much so.  But who says China is a windfall more than is already priced into the stock?  Note the phrase "already priced into the stock."  If it is, then AAPL will rip higher (maybe a lot higher).  But what evidence do we have the firm will beat expectations in China? What evidence do we have that the firm will beat expectations anywhere?

We do have evidence of lower margins, shrinking market share across multiple product lines and even disappointing same product revenues for the iPad.

That's it.  That's what we have.  Beyond emotion, blue shirts and loyalty.

Will the "new" AAPL blow us away? Maybe (it is possible)...  I hope AAPL does re-innovate -- it helps competition and it helps consumers; they changed the world, no doubt about it. I hope they change the world again.  But if you had to bet, what odds would you need to take that side? Steve Jobs is gone.  That really does matter.

This Just Isn't the Company it Used to Be... And it Never Will Be Again.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_

legal.html

Netflix (NFLX) - Is this the Most Powerful Firm in Entertainment? Some Things I Bet You Didn't Know... But Want to.

NFLX is trading $309.53, up 5.2% with IV30™ up 5.5%. The LIVEVOL® Pro Summary is below.




-------------------------------------------------------



-------------------------------------------------------

Netflix, Inc. (Netflix), incorporated on August 29, 1997, is an Internet subscription service streaming television shows and movies. The Company’s subscribers can watch unlimited television shows and movies streamed over the Internet to their televisions, computers and mobile devices, and in the United States, subscribers can also receive digital versatile discs (DVDs) delivered to their homes.

This is another stock and volatility note on NFLX and in many ways is the continuation of my prior post on 4-25-2013:

Netflix (NFLX) - Vol Nears Multi-Year Lows as Stock Explodes; Hollywood Take Note -- Another Shot Across Major Distributor’s Bows

I have included the Symbol Summary at the time of that post, below:



We can see that NFLX is up more than 40% since then and today has finally eclipsed its all-time high set back two-years ago. This is a firm that saw it's stock price go from ~$300 to ~$50 and for all intents and purposes was getting fit for a coffin by Wall St.

But then something magical happened. Something that the music industry could not do, something that Myspace.com couldn't do, something that most companies can't do -- management changed the direction of the firm and absolutely smashed Wall St. and Hollywood in the mouth.

Here's a snippet from my post on 4-25-2013, before we get to today's news.

---
We can see the wild ride in NFLX stock over the last two-years, but really it’s been a five-year ride. A lot of respect has to be levied at the feet of NFLX management for doing such a stellar job of pulling the firm out of what looked to be a hopeless situation just a few months ago. And, on a personal note (and as a professional screenwriter), “House of Cards” was absolutely brilliantly done – an in house NFLX production which has fired a shot back across the bow of the largest content distributors in Hollywood (Sony, Disney, Paramount, Warner Bros, Lions Gate, Fox, NBCUniversal).

NFLX has taken on the industry big boys… again…

I wonder if in a few years, the next time we discuss the most powerful distributors in Hollywood, if NFLX is on the list... At the top...
---

That last sentence in bold is suddenly looking like a truism rather than a pipe dream. Let's start the story with the two year Charts Tab, below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see the tail end of the stock collapse and then the incredible recovery and now move to a new all-time high.

So why is this happening to NFLX?  Well, a lot of reasons, but one of the biggest is pretty simple:

NFLX now decides which TV shows are hits.  Yeah, that's right.  For example, the AMC original show Breaking Bad, the highest rated TV show ever by meta critics, was at a point after season 4 where its record viewership for any one episode was ~1.5 million people.  That's actually very low.  CBS has nights where shows hit 20 million.  The Walking Dead (also on AMC) hit over 12 million.  So, Breaking Bad, though a bonanza on the critical side, was actually kind of a poor performer in terms of viewership.  Then NFLX happened.

An agreement was struck to put all of the "Breaking Bad" old seasons on NFLX for free (everything is free on NFLX with the monthly subscription). The first episode of season 5 aired to 3 million viewers (so a 100% increase).  Then, the first episode of season 5 part II aired to 6 million viewers (NB: My numbers may be off wrt which season the bump(s) happened, do some fact checking before quoting me).  OK, OK, is this really b/c of NFLX?  Well, here's a direct quote from the show's creator, Vince Gilligan:

---
"I am grateful as hell for binge-watching. I am grateful that AMC and Sony took a gamble on us in the first place to put us on the air. But I'm just as grateful for an entirely different company that I have no stake in whatsoever: Netflix. I don't think you'd be sitting here interviewing me if it weren't for Netflix. In its third season, Breaking Bad got this amazing nitrous-oxide boost of energy and general public awareness because of Netflix."
---

Why does this matter?  How about this...  Instead of NFLX paying for content, the content providers may pay NFLX to air their shows.  That's f*ing incredible.

Add to the fact that NFLX now has critically acclaimed original content -- that's content available ONLY on NFLX ("House of Cards" and "Orange is the New Black" are two of them) and what we're slowly finding here is that NFLX may become the most powerful content distributor for TV (the profitable part of the entertainment business) on the planet.

Don't laugh or roll eyes, it's happening right now.  FOX is tying the same game as AMC did with "Breaking Bad" with their sitcom "The New Girl."  And you know what?... it's working again...

Now NFLX does have competitors, namely AMZN (I know they're not the first name to come up from entertainment industry folks, but the entertainment industry is wrong -- AMZN is the risk for NFLX). Another risk is the content creators using their own channels (no pun intended)... but that doesn't seem to work so far (and yeah I know what Hulu is and who created it).

Back to options, another fascinating thing about NFLX is the level of the implied.  Let's turn to the two-year IV30™ chart in isolation, below.



Look how low that volatility is relative to the last two-years.  Now a part of that is b/c NFLX was actually in the realm of solvency risk at one point, so the vol should have been higher, but given the complete turn around in the firm and the continued rip roaring results and impact on the industry, that low seems kinda low, right?  Or no?

Here's more news, from CNBC a day after I posted this article:
---
Groundbreaking news that Virgin Media is bringing Netflix directly to its set-top box in the U.K. in effect elevates Netflix to the status of a new cable network-a benefit for a cable company and beyond being an upstart threat to cable.

The deal, which makes Netflix available on cable set-top boxes for the first time, was announced Monday. On Tuesday, Netflix shares hit a new all-time high, trading 6.5 percent higher to $313, flying past its record $304 on July 13, 2011. (Click here for Netflix's (NFLX) latest stock price.)

The stock's nearly 220 percent gains this year have been driven largely by the success of its original content deals, which have helped add new subscribers, giving Wall Street confidence that exclusive originals will continue to deliver.

(More from Julia Boorstin: Is Apple's iRadio a Pandora killer? )

Virgin's parent, Liberty Global (LBTYA), gained just under a percentage point on Tuesday's news.

Virgin Media's partnership with Netflix is the first time a cable operator is bringing the streaming service directly to the set-top box. Other cable operators-like Comcast (CMCSA)-allow users to access Netflix through Internet-connected set-top boxes-but this is the first time a cable channel has directly made a deal with Netflix to treat its content just like that provided by cable channels like HBO (owned by Time Warner (TWX)) and Showtime (owned by CBS (CBS)). (Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.)


Virgin will integrate Netflix with its television content so it's easy to seamlessly browse and search across both TV and streaming content.

Source: CNBC via Yahoo! Finance Why Netflix is at a new all-time high, written by Julia Boorstin.
---

Whoa...

In any case, NFLX is in a position now where a very aggressive but in the realm of possible take on the firm is seeing a market cap well north of $50 billion.  Today it sits at ~$18 billion.  A word of caution though, this firm has been "this hot" before and almost went away in a matter of a year (or two), so, things are risky here. Wait a second, did I say risky?... But the volatility?... Eh, never mind...

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Fusion-IO (FIO) - Rival Takeover News; Stock Pops, Volatility Pops; Skew Bends to Upside

FIO is trading $13.16, up 21.55% with IV30™ exploding up 29.4%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------



-------------------------------------------------------


Fusion-io Inc (Fusion) is a provider of datacenter solutions that accelerate databases, virtualization, cloud computing, big data, and the applications that help drive business from the smallest e-tailers to some of the largest data centers, social media leaders, and Fortune Global 500 businesses.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. But I also note, this is a stock story, with a long awaited rally in a stock has seen a cataclysmic decline.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The two-year FIO Charts Tab is included (below). The top portion is the stock price; the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



Let’s focus on the stock side, first. Look how FIO has fallen from a ~$41 stock in Nov 2011 to $10.83 as of Friday’s close (before the pop today). We’re talkin’ ~75% loss in equity value in less than two years. Then, today happened, pushing the stock up more than 20%, but still well below the $40, $30, or even $20 range.

So what’s the news? Well, Western Digital bought Virident and FIO is a main rival to Virident. With a stock down 70% (or whatever), yeah, when a rival is bought out, you better believe it’s good news.

Let’s turn to the two-year IV30™ chart in isolation, below.



Interestingly, even as FIO stock has imploded, the implied has generally reached the same peaks in each earnings cycle (see the blue “E” icons). It would not have been unusual if the volatility would have kept creeping up into each earnings cycle as the results continued to disappoint. But the volatility didn’t… The news today however, yeah, that’s new information with an unknown outcome and that equals vol.

The volatility, however, has a directional bias. Let’s turn to the Skew Tabs from Friday and today.

Checkout how Sep vol is below Oct as of Friday.



And now… look at the one-sided volatility in Sep (the red curve). In English, the risk reflected in the Sep options is heavy to the upside... That’s normal given a takeover frenzy, but will likely die down soon without more “new” news.



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



Across the top we can see the monthly vols are priced to 65.87% to 59.26% for Sep and Oct. Note that Sep vol is up 20.9 vol points (the number in the parenthesis) while Oct is up 9.9 vol points. This is a bit of a frenzy in my opinion. But then again, FIO is down so huge and their rival was just bought out… How attractive is FIO stock right now to a potential takeout? The option market says, quite attractive.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Vipshop (VIPS) - Chinese ADR Shows Volatility at All-time Low; Stock up 1000%... What's the Disconnect?

VIPS closed at $42.94, up 2.0% with IV30™ down 2.0%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------



-------------------------------------------------------


Vipshop Holdings Limited (Vipshop Holdings) is a holding company. Vipshop Holdings conducts its business through its subsidiaries and consolidated affiliated entity in the People's Republic of China. The Company is engaged in the online discount retailer for various brands.

I found this stock using a real-time custom scan. This one hunts for depressed vols. I note that VIPS is in the “0” (zero) percentile, so it is in fact at an annual low. The fact is, this firm has only had traded options since Apr of this year, so this volatility level is in fact an all-time low (for whatever that’s worth).


Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The two-year VIPS Charts Tab 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 a price rise from ~$4 to now ~$43. So, ya know, up a lot-a lot. We can also see an all-time high in equity price ($50.43) reached right around the last earnings date in the middle of August. This is where the story begins… note the stock drop since earnings of ~ $10.

Now let’s turn to the IV30™ chart in isolation since the firm began trading options.



We can see a closing peak of 106.31% and although there was another (lower) peak at the end of Jul, the implied has collapsed since then. So, we have a Chinese ADR that is up ~ 1000% in two-years, down ~ 20% from its last earnings release and an all-time high with the implied now dipping to an all-time low. What? This one I really don’t get…

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



Across the top we can see the monthly vols are priced to 64.30%, 65.21% and 70.25% for Sep, Oct and Nov, respectively. That monotonic increase in volatility makes sense, but even that scale is quite low relative to a stock up 1000% in two-years and down 20% in four weeks off of earnings.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

VeriFone (PAY) - Volatility Breaches Annual High; Earnings Out in 2-Hours, Will Pattern Continue?

PAY is trading $20.36, up 0.4% with IV30™ up 1.4%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------

Livevol Execution: Complex Trading Simplified



Click to Learn More
-------------------------------------------------------

VeriFone Systems, Inc. (VeriFone), formerly VeriFone Holdings, Inc., is a holding company for VeriFone, Inc. The Company is engaged in the secure electronic payment solutions. It provides solutions, and services for the financial, retail, hospitality, petroleum, transportation, government, and healthcare vertical markets. Its system solutions consist of point of sale (POS) electronic payment devices that run its and third-party operating systems, security and encryption software, and certified payment software, as well as other third-party value-added applications.

I found this stock using a real-time custom scan. This one hunts for elevated vols. ow PAY has earnings due out in two hours -- but the implied is at multi-year highs, and i have sneaking suspicion why.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year PAY Charts Tab 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 I have highlighted several gaps in the price, noted with yellow circles. Most of those moves were in reaction to an earnings announcement. So, in English, this stock seems to react rather abruptly to earnings releases.

Let's turn to an isolated two-year IV30™ chart, below



Check out the level of the implied right ahead of earnings in a couple of hours.  That is a multi-year high.  My sneaking suspicion is pretty simple-minded -- the stock has whip-sawed off of previous earnings releases and the option market is reflecting that risk in today's announcement.

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



In the front month we can see that ATM straddle is priced to ~$2.70.  Now that's not just the earnings release, as there are a couple of weeks of trading after the news, but the point is, we're looking at 82%+ volatility into the news.  Now the real question is, will PAY gap again, or is this fool's gold volatility ready for a huge vol crush?

I'll tell you in two-hours.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Rochester Medical (ROCM) - Cheater? Pre-Takeover Option Trading Looks Suspicious. How to Make 145% in a Week on 2,300% Daily Average Volume

ROCM is trading $19.95, up 44.46%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------

Livevol Execution: Complex Trading Simplified



Click to Learn More
-------------------------------------------------------

Rochester Medical Corporation develops, manufactures and markets a range of polyvinyl chloride (PVC)-free and latex-free urinary continence and urine drainage care products for the extended care and acute care markets.

I found this stock with a simple scan: The top stock gainer on the day. The news pushing the stock is pretty straight forward:

---
“C.R. Bard (BCR) has agreed to acquire Rochester Medical Corporation (ROCM) in a cash deal worth approximately $262 million. Under the terms of the deal, each ROCM shareholder will receive $20 per share. The deal is expected to close during the fourth quarter of 2013”
---

While the news is straightforward, unfortunately the trading pre-takeover news is not quite so straightforward. This one looks like another potential case of insider information used to garner an unfair (and illegal) gain. I’ll lay out the evidence and let you make your own conclusions.

Let’s start slow. I have included the Stats Tab, below.



Two things I want to focus on:
(1) The total average daily volume over a three month period in options is ten contracts. Yeah, ten. On average that settles into one put and nine calls.

(2) The average open interest (OI) over the same three month period is 407, which breaks down into 247 calls and 160 puts.

OK... Now let’s turn to the Options Tab.




I have highlighted the Oct 10 calls which show an OI of 263 contracts. Since the average OI over the last three months (247) is below that number, my eyes popped a bit when I saw the 263 number. But, that’s still just a number…

Then I looked at the open interest chart for just that call. I have included that image below.



Here’s where it starts to look a bit suspicious in my opinion. On 8-28-2013 (so five trading days ago), the OI in those Oct calls went from 33 to 263. That means 230 of the Oct 10 calls traded when the firm averages 9 calls a day and a total (all encompassing) call OI of just 247. Hmm….

OK. More evidence?... Sure… 8-28-2013 (the day those calls were purchased) was the largest option volume day over the last-years in ROCM (I don’t have access to data more than two-years old right now), so in English, the volume on the day was in fact the highest over a multi-year window.

The next step was to look at those trades more myopically. I have included the Time & Sales tab below.



We can see that 230 of the Oct 10 calls traded for $4.10 with the stock closing at $13.86. The NBBO was incredibly wide b/c of the low volume in the options but we know the calls had $3.86 in parity ($13.86 - $10). The Oct 10 puts had no bid, so a $4.10 price in the calls priced the puts at $0.24. That feels like a purchase to me (lest we forget put-call parity).

At $20 per share (the deal price), those Oct 10 calls are worth $10 (at least), which makes a $5.90 gain on a $4.10 bet or a 145% gain in a week originating from the largest option trading day in two-years on call volume 2,300% the daily average volume.

OK, your turn to draw a conclusion...

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

FedEx Corporation (FDX) - Volatility Breaches Annual High Well Ahead of Earnings; Market BellWether Risk is Here

FDX is trading $107.60, up 0.2% with IV30™ up 1.3%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------

Livevol Execution: Complex Trading Simplified



Click to Learn More
-------------------------------------------------------

FedEx Corporation (FedEx) is a holding company. The Company provides a portfolio of transportation, e-commerce and business services under the FedEx brand.

I found this stock using an elevated volatility scan ad it's a follow up to the post I wrote on 8-25-2013. You can read that post by clicking on the title, below:

No Noise, Here are the Facts, and Why: The Market Will Go Up. The Market Will Go Down.

FDX is bellwether, and the option market is reflecting elevated volatility well ahead of earnings due out in mid Sep.

The two-year FDX Charts Tab 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 that the price is right at a multi-year high (which it reached on 8-26-2013). In fact, two-years ago this was a sub $80 stock and just a few months ago it was trading at ~$93. But it's the vol that caught my eye.

I've included the two-year IV30™ chart in isolation, below.



At first glance we see an implied that in all respects looks unremarkable relative to its past. But that's just the first glance. In fact, the current IV30™ is at a annual high, breaching the 30% level for the first time since Jun 2012. I bring this up for two reasons:

(1) FDX is at an annual high and is another one of those socks that measures much more than its own results when earnings come out, but rather an evergreen type of measure like WMT, HD, etc. As I alluded to in the prior post on 8-25-2013, retailers looked terrible (Walmart (WMT), Macy’s (M), Nordstrom (JWN), Target (TGT) and Staples (SPLS)) but the do-it-yourself guys (HD and LOW) were booming. So we're squarely in "I don't know land." It's the same picture in housing where we have two phenomena:

a. The latest data show existing home sales — which account for more than 90% of the housing market — are up 17% from the levels of last summer.
b. The latest data also show that new-home sales, which have less of a lag than the existing-home numbers and may better reflect real-time conditions, fell unexpectedly to a nine-month low.

"I don't know land" means uncertainty, and that means risk. For FDX, that means an annual high in the implied well ahead of earnings.

(2) Even though FDX is at an annual high in the implied, it has been much higher in the fairly recent past, hitting just below 50% about two-years ago. It would not surprise me to see the implied for FDX go well in to the 35% range -- a level not reached in well over a year but a level that is not uncharted territory for the stock.

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



Sep vol is priced to 32.58% while Oct is priced to 27.89%. In another post I wrote on FDX on my personal blog on 8-28-2013, I wrote:

"It would not surprise me to see the implied for FDX go well in to the 30%-35% range." Well, we're there and now I see it potentially going to the upper level of that range. The real question is -- ow abrupt will the market react to the earnings? A part of that answer depends on how abrupt the results are. If the earnings are "ho-hum," it could be a non-event, but if the results are consumed by the market as a major indicator of economic direction (one way or the other), this single stock could have a big effect on the broader indices. Interestingly, FDX reports 9-18-2013 BMO, right on the second that VIX Sep options expire. Yikes...

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Caesars Entertainment (CZR) - Vol Pops as Stock Falls 80%, then Rises 500%; Why is Sep Volatility so Cheap?

CZR is trading $21.77, down 0.32% with IV30™ popping 10.8%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------

Livevol Execution: Complex Trading Simplified



Click to Learn More
-------------------------------------------------------

Caesars Entertainment Corporation provides casino entertainment services. Its casino entertainment facilities include land-based casinos, riverboat or dockside casinos, managed casinos, combination greyhound racetrack and casino, combination thoroughbred racetrack and casino, and harness racetrack and casino, hotel and convention space, restaurants, and non-gaming entertainment facilities.

First, on a totally random point, shouldn't the firm name be Caesar's with an apostrophe?  What's up with that... Anyway, I digress...

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. But this note is actually focused on depressed vol and an exploding stock price. CZR is actually the only company to appear on the screen today.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The two-year CZR Charts Tab 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 two pieces to a single chart:
(1) The first part sees the stock drop from ~$18 to ~$4.50. So just a cataclysmic implosion with the firm nearing bankruptcy levels.
(2) The rise from $4.50 to now ~ $22, an incredible reversal seeing a stock rise to 550% of its prior value in less than a year.

The stock is now at an all-time high. But this is also a volatility note, so let’s look to the two-year IV30™ chart in isolation, below.



We can see the spike in the implied today, but really, that’s not the story. This stock has seen implied vol over 120% in the last year and now trades at volatility in the 70% range. Given the schizophrenic stock movement over the last two-years, I dunno about 70% vol. That’s just I the 25th percentile for the year and the stock is ripping right now. At the end of June, this was a $12 stock…

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



Across the top we can see that Sep vol is well depressed at 69.39% while Oct and Dec pop over 80%. My focus is on that short-term volatility in the Sep expiry. What’s going on there?

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

Methode Electronics (MEI) - Stock Explodes to Decade High on Earnings; Pre-earnings Trading Very Suspicious

MEI is trading $23.50, up 33.3% with IV30™ popping 20.9%. The LIVEVOL® Pro Summary is below.



-------------------------------------------------------

Livevol Execution: Complex Trading Simplified



Click to Learn More
-------------------------------------------------------

Methode Electronics, Inc., is a manufacturer of component and subsystem devices. The Company operates in four segments: automotive, interconnect, power products, and other. The Company designs, manufactures and markets devices employing electrical, radio remote controls, electronic, wireless and sensing technologies.

MEI is the single largest stock gainer today and pushed the stock to decade highs off of an earnings release that shocked everyone... Well, almost everyone... I believe that the order flow leading up to the earnings release does in fact reveal potential malfeasance – that is, the use of insider information to garner illegal profits. But this one is tricky – in so many ways.

Let’s get started with the Stats Tab, below.



Just one thing I want to note here, which is that the firm averages 36 total option contracts traded a day – that’s a three month (60 trading day) average. Those 36 contracts breakdown to average:

(1) 29 calls traded a day
(2) 7 puts traded a day

OK, keep those tiny numbers in mind as we walk through this analysis. This is a diagnosis, but first we need a symptom.

Let’s turn to the Options Tab as of right now, and look at the OI in the Sep 17.5 calls.



I’ve highlighted the strike in question. I first noted that the OI was pretty large for this name, in fact the total sum of the OI in all of Sep is 372, so those calls are 182% of the other OI in Sep (240 vs 132).

OK, that’s the symptom.

Here’s the diagnosis.

The OI in those calls looked like this over the last few days:
8-26-2103: OI = 1
8-27-2103: OI = 115
8-28-2103: OI = 215
8-29-2103: OI = 240

Hmmm... The firm averages 29 calls traded a day yet the Sep 17.5 calls alone traded over 100x on 8/26 and 8/27 with earnings out on 8/29.

Well, what about those calls? On 8-27-2013 100 traded, but on the bid. So, they were probably sales, right? No, absolutely wrong. I hope you have LIVEVOL® Pro, but if you don't, watch this.

Here is the Time & Sales snapshot from that day for those calls, and then the real analysis.



OK, there’s one hundred trading $0.80 on the bid. But, check this out. Let’s look at the level II quotes at the time of the trade.



Look at PHLX. The NBBO before the trade was $0.65 x $0.85, then on PHLX someone posted a bid of $0.80 and that bid was hit. This type of trading does two things:

(1) Allows for a better execution than simply lifting the offer (which would have cost $0.85)
(2) It hides the trade by looking like it traded on the bid and was therefore a sale.

But this wasn’t a sale – we can see clearly that the initiator bid up the options and got their fill for $0.80. Was that just a coincidence? Well, let’s look at the day before.

I have included the same level II quotes at the time of a trade on 8-26-2013, below.



Here we see the NBBO was $0.85 x $1.20 before the trade then someone bid $1.15 and the offer dropped to $1.15 to match it. Again, that’s a hidden trade.

All in all, I see 239 Sep 17. Calls bought for ~$0.85 a few days prior to an earnings blowout that pushed the stock to a decade high stock price.

Total paper profits: 239 x 100 x ($6.00 - $0.85) = $123,085 on a $20,000 bet or a 600% gain in three days. How convenient...

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html