KIT digital (KITD) - "Regular Irregularity" Exposes Mis-priced Exploding Vol

KITD is trading $6.20, down 23.9% with IV30™ up 49.5%. The LIVEVOL® Pro Summary is below.



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KIT digital, Inc. (KIT digital), incorporated on August 11, 1998, through its operating subsidiaries, provides enterprise clients an end-to-end technology platform for managing Internet Protocol (IP)-based video assets across the browser, mobile device and Internet protocol television (IPTV) set-top box-enabled television set.

This is a vol and sock note (obviously) on some disturbing news. The plot thickens as we examine the stock price movement prior to the information today. Let's start with the news:

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Kit Digital Inc. (KITD) fell the most in three years after the maker of online video software said it accepted the resignations of four board members.

Source: Bloomberg via Yahoo! Finance -- Kit Digital Tumbles Most in Three Years as Board Members Resign, written by Krystof Chamonikolas.
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Icky...

Let's turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



This is a fascinating stock and vol chart. First, check out the move between 11-8-2011 to 11-12-2011, surrounding the earnings release on 11-9-2011. The stock went from $8.36 to $12.37, or up 48% in three days. Here's that news:

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Revenue in the third quarter of 2011 increased 29% sequentially to a record $62.3 million from $48.2 million in the previous quarter, and increased 124% from $27.7 million in the same quarter a year ago. Excluding the effect of acquired companies during the comparable periods, the company estimates organic growth in Q3 was 11% sequentially and over 35% versus the same year-ago quarter.

Source: marketwire via Yahoo! Finance -- KIT digital Reports Record Q3 2011 Results
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Although the results were tremendous and the stock exploded up, just eighteen calendar days later the stock was back down to $8.70. Through that entire period, the implied stayed in a range of about [69%, 82%] while the HV10™ rose as high as 175%. Fast forward to 2-9-2012 and the stock hit $12.58 -- the implied was falling during this same period and hit as low as 53.68%.

Since 2-9-2012, the stock is down 51%, with a chunk of that move today. Before the news and move today, the implied was still below 70%. Finally, today, the implied has exploded up 50% to 102.60%. The 52 wk range in IV30™ is [38.59%, 82.72%], making the level today an annual high and in the 100th percentile (annual). Note that the HV20™ (and all HV measures) is calculated close-to-close, so that number (and chart) will spike tomorrow.

Obviously hind sight is 20/20, but the implied looked horribly under priced throughout the last six months, with today expressed more like a "regular" irregularity rather than a jaw dropping surprise. I dunno, just looks like mis-priced vol...

Let's turn to the Skew Tab.



We can see all three of the front expiries show a parabolic (ish) skew, with both the downside OTM options and the upside OTM options priced higher than the ATM options. In English, the option market reflects both downside risk and upside potential,... Uh, yeah....

It's also worth noting the vol diff between the three expiries with a monotonic rise in vol from the back to the front.

Finally, let's turn to the Options Tab.



We can see Apr, May and Jul are priced to 107.22%, 98.51% and 98.03%, respectively. Even Oct is priced to 85%, which is above the annual high in IV30™.

This is trade analysis, not a recommendation.

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