NutriSystem (NTRI) - Earnings Approach, Vol Splits

NTRI closed on Thursday at $11.31, up 1.3% with IV30™ up 2.2%. The LIVEVOL® Pro Summary is below.



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Nutrisystem, Inc. is a provider of a weight management system based on a low-calorie, portion-controlled, prepared meal program.

This is a vol note surrounding an approaching earnings date on 5-1-2012 AMC. Before we get into the charts and vol, let’s first look at the some earnings history – specifically, the last four quarters.



We can see for the last four quarters, NTRI has averaged an absolute 8.4% stock move with a median of 8.04%. OK, good to know. 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).



In the stock portion, I’ve highlighted the last two earnings moves, both down. The prior two moves (see table above) were up. On the vol side, at first glance we see that the implied is trading below the long-term historical realized vol (HV180™) but above the short-term historical realized vol (HV20™). Note how the Hv20™ has moved – it popped off of the earnings move, and once that day rolled off the average, it dropped right back down to where it was prior. The current HV20™ is 31.85% -- so quite a discount to the implied and the HV180™ which is 49.38%.

I would expect the implied to be trading above both of the historical realized measures this close to earnings, and still expect it to rise into the 50% range over the next few trading days. The 52 wk range in IV30™ is [32.65%, 78.54%],putting the current level is just the 28th percentile (annual).

The IV30™ over the last five earnings cycles has been 64.62%, 65.43%, 78.54% and 56.74% respectively, from 4-27-2011 through 3-5-2012. For context, recall that the IV30™ right now is just 45.69%.

Let’s turn to the Skew Tab to examine the vols month-to-month and line-by-line.



We can see how the front month vol is elevated to the back – a perfectly normal and expected behavior as earnings approach. We can also see that vol diff for the ATM options – on the 11 strike.

Finally, let’s turn to the Options tab, for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see broadly speaking, that there’s an eight point vol diff between May and Jun. The ATM vol in Jun is ~40% (keep in mind there’s likely a dividend in there as well). The May 11 straddle is priced at $1.15, or 10.175 of the stock price – which is in fact slightly above the average move over the last four cycles. The Jun vol of ~40% would be in the 16th percentile for IV30™.

This is trade analysis, not a recommendation.

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Teradyne (TER) - Popping Stock, Dropping Vol

TER is trading $17.44, up 3.6% with IV30™ down 9.4%. The LIVEVOL® Pro Summary is below.



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Teradyne, Inc. (Teradyne) is a global supplier of automatic test equipment. The Company designs, develops, manufactures and sells automatic test systems and solutions used to test complex electronics in the consumer electronics, automotive, computing, telecommunications, wireless, and aerospace and defense industries.

This is a vol note with some order flow and a move off of earnings. TER has traded over 13,000 contracts on total daily average option volume of just 1,301. Calls have traded on a nearly 5:1 ratio as the stock continues to move higher off of earnings. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. The May 17, Jun 17 and Jun 18 calls are mostly opening (compare OI to trade size). All three of those lines look like substantially purchases.



The Skew Tab snap (below) illustrates the vols by strike by month.



While there is a vol story I want to get to, it's not in the skew. All looks quite normal here, though I do note that the front month is elevated to the back months even though the earnings release and earnings move are over.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



So here we go. We can see on the stock side how the underlying has popped into and after earnings (which were announced yesterday AMC). On 4-24-2012, this was a $16.03 stock. As of this writing, the stock is up 8.80% from then -- a nice move in a 35% vol stock. Turning to the vol portion we can see the vol crush out of earnings and even the few days before, oddly. On 4-23-2012 the IV30™ was 42.13% and dipped to 39.55% as earnings approached. Now the vol is down to 35.84%, or in total, a ~15% drop in vol.

The interesting part about this company is the actual vol level as of right now. The 52 wk range is [31.33%, 66.98%], putting the current level in the 12th percentile (annual). For a firm that just rose nearly 9% into (and out of) earnings, that 12th percentile feels kinda low. But, taken a step further, note that the back months are actually less expensive than the front (in vol). So, for example, Jul vol is in the 34% range which would be more like the 10th percentile in IV30™. One quick caveat, this firm normally releases earnings in late Jul -- after Jul expiration. It will be interesting to see if the call buyers (vol buyers) are right or if this name will in fact see an annual low in vol and the stock will sit still.

This is trade analysis, not a recommendation.

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H&R Block (HRB) - Shares Fall on News; Vol Move Yields Noteworthy Phenomenon

HRB is trading $14.62, down 12.7% with IV30™up 54.2% as of ~10:40am EST. The LIVEVOL® Pro Summary is below.



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H&R Block, Inc. (H&R Block) is a tax service provider. H&R Block has subsidiaries that provide tax, banking and business and consulting services.

The news driving the stock today surrounds a reorg, layoffs and office closings. I’ve included a snippet from the news below:

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H&R Block (HRB) notified the market of an impending shakeup late Wednesday, and investors promptly dumped the company’s shares, sending the stock down 16% in trading after the close.

The tax prep company said it will cut 350 positions and close 2o0 offices as part of an effort to save $85 million to $100 million a year.

The company also announced management changes. The president of retail tax services resigned and HRB said it is looking for a new CFO to replace Jeff Brown.

Source: Barron’s via Yahoo! Finance, H&R Block Cutting Jobs, Offices; Shares Plunge written by Avi Salzman.
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The market certainly doesn’t like the news but a bit of a vol story has developed because of this move and I want to explore it. 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).



On the stock side it’s pretty simple – the underlying has gapped down today to near the six month closing low of $14.41. On the vol side, we can see the gap up. The 52 wk range in IV30™ is [19.50%, 62.54%], putting the current level in the 47th percentile (annual). I do make note of how depressed the HV20™ at 18.78% is relative to the implied (though that number does not include the move today).

Let’s turn to the Skew Tab.



At first blush all seems kinda normal. Certainly, the shape of the skew shows no kinks and the vol rises to the OTM puts as expected. HRB earnings are usually in Mar, Jun (late), Sep and Dec. So, that Jul vol in fact has an earnings date embedded and it will be the first planned earnings announcement after the news today.

Let’s turn to the Options Tab to look at some actual numbers.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see across the top the vols of 40.94%, 41.30% and 39.43% for May, Jun and Jul, respectively. For the last two years, earnings have fallen on Jun 23rd and 24th – so after the Jun option cycle (but inside Jul). Noting that the current IV30™, though elevated today, is still pretty “middle of the road” and that Jul with earnings (the first after this news) is priced below the IV30™, that makes for a noteworthy vol phenomenon.

This is trade analysis, not a recommendation.

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Amarin Corp (AMRN) - Bio-tech Rumors Break Vol; Short-term Risk / Long-term Risk Elevated -- Skew Diverges

AMRN is trading $10.05, up 3.1% with IV30™ up 21.1%. The LIVEVOL® Pro Summary is below.




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Amarin Corporation plc (Amarin) is a clinical-stage biopharmaceutical company focused on developing improved treatments for cardiovascular disease. The Company’s development programs capitalize in the field of lipid science and the therapeutic benefits of essential fatty acids in cardiovascular disease.

This is a vol note (obviously), as the wave of bio-tech takeovers (and rumors) continues to build. Let's start with the news snippet that's pushing vol.

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10:48 EDT Rumor: Amarin moves up on renewed takeover chatter

Source: Theflyonthewall.com via Yahoo! Finance.
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OK, that was kinda terse, but we get the idea. Let's start with 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).



On the stock side, we can see that within just a few months AMRN has gone from a $6.03 close on 12-15-2011 to now $10.05 -- that's a 66.7% rise. The 52 wk range in stock price is [$5.99, $19.87], so volatility kinda comes with the territory.

Looking to the vol, we can see both the meteoric rise today in the implied, and how "quiet" the underlying has been of late. As of right now, the HV20™ is 55.64% while the IV30™ is 100.58%. Said differently, the last twenty trading days have seen the stock move at a 55% vol clip (annualized) while the options reflect for the next 30 calendar days (~22 trading days) a vol almost twice that. So, the quiet period is over according to the options. The 52 wk range in IV30™ is [61.50%, 128.78%], putting the current level in the 57th percentile.

This vol story gets really interesting when looking to the skew.



I've included four expiries for sake of comparison. We can see how dramatically different the risk profile looks through the options when examining the short- versus the long-term. The two front expiries show reverse skew, where the OTM calls are the most expensive options. The back two expiries show the opposite -- where OTM puts are most expensive.

I've included the Skew Tab from one month ago (3-26-2012), below.



We can see a few differences from today's skew:

1. A month ago, the Sep options were vastly more expensive than the front three expiries across all strikes.

2. A month ago, there was a monotonic vol increase from the front to the back.

3. The front three expiries showed a flattish skew (Apr had that one super bid OTM call).

Without having done any research on this firm, it's apparent to me that as of a month ago the big "valuation changing" news was due out in Sep. As of today, that vol diff has essentially evaporated to the front, and the near-term reflects substantially more upside risk (potential) than the back months. In English, the takeover rumors and actualizations in this industry have changed the risk profile for this firm quite substantially, and there's no easier way to see it than in the options.

Let's turn to the Options Tab for completeness.




Just looking at the top of the Tab where the monthly vols are displayed: 102.45%, 97.82%, 110.33% and 103.31% for May, Jun, Sep and Dec, respectively. The greatest vol diff now lies in between Jun and Sep -- an interesting but logical result. If there's gonna be a takeover, the "risk" is in the near-term. If not, the risk goes back to the news / results / updates due out in the back months. Pretty cool...

This is trade analysis, not a recommendation.

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Monster Beverage Company (MNST) - Earnings Approach, Where Will Vol Go?

MNST is trading $63.44, up 0.9% with IV30™ down 1.9% as of ~ 11am EST. The LIVEVOL® Pro Summary is below.



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Monster Beverage Corporation, formerly Hansen Natural Corporation, is a holding company. The Company develops, markets, sells and distributes alternative beverage.

This is a vol note with earnings approaching. Let’s start with 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).



On the stock side we can see the price evolution of late – which has been essentially straight up. Six months ago this was a $42.23 stock. Today it’s trading at $63.44, or up 50.22%. Nice…

On the vol side, I’ve circled the implied right before the last two earnings cycles, as well as the level today. The next earnings date for MNST should be about the first week of May – so we still have some time, but it’s interesting to see where vol might go in the next ten calendar days (or so). To get a closer look, I’ve included just the vol chart for the last three earnings cycles, below.



We can see the dip today as well as the levels for the prior three quarters. The 52 wk range in IV30™ is [24.64%, 64.71%], putting the current level in just the 36th percentile. But, the analysis gets a bit more interesting when looking to the Skew Tab, below.



As expected, the front month (with earnings) is elevated to the back – and quite substantially so. Recalling that IV30™ is a weighted average of two expiries, that means that the front month is above the current IV30™ and the back is below. So what? Let’s look to the Options Tab for that answer.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Across the top we can see May is priced to 42.47%, while Jun is priced to 34.35%. Looking back to that vol chart, the last three earnings cycles showed IV30™ of 55.44%, 56.32% and 43.89% for 8-2011, 11-2011 and 2-2012, respectively (month-year notation). As we all know, vol has dropped rather significantly over the last few months and that’s echoed even in this specific name as earnings vol dropped from the mid 50’s to the low 40’s. It's a fair question to ask where vol will go on the day before earnings and equally interesting, where should that second month vol go?

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Apple (AAPL) - Earnings Vol Preview; The Option Market Takes a Stand on Risk -- It's Elevated

AAPL is trading $566.85, down 0.8% with IV30™ down 2.4% as of ~10:20am EST. The LIVEVOL® Pro Summary is below.



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Apple Inc. (Apple), along with its subsidiaries is engaged in designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications.

This is an earnings note – how the option market reflects an unambiguous risk premium relative to the recent past. Specifically, the vol level into earnings for AAPL is elevated relative to the past five quarters and seven of the last eight reflecting heightened stock risk.

Let’s start with the Charts Tab (two years), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



I’ve chosen a longer time horizon than I usually do to point out a very interesting phenomenon with respect to vol. First, on the stock side we can see AAPL’ rise – something I’m guessing we’re all aware of. On the vol side, we can see how as of right now, the implied is elevated – that makes perfect sense given the earnings announcement due out today.

To look more closely at the implied, I’ve included the vol chart for the last two years with only the IV30™ charted, below.



I have circled the earnings vols in yellow, and drawn an horizontal line from the current IV30™ back two years. Here’s where the vol phenomenon becomes more apparent. The level of the implied today (right before earnings), is higher than every earnings cycle over the last seven (and in fact eight) earnings releases other than the 10-18-2010 cycle. To make the point a bit clearer, I’ve included the actual numbers going back eight earnings cycles, below.



Keep in mind that the IV30™ in AAPL as of this writing is 42.19%. So, again, we can see quite clearly that the risk reflected by the option market today is higher than it’s been for earnings since October of 2010.

Delving a bit deeper, check out the vol levels for both of the October dates (so, Oct 2010 and Oct 2011). You’ll note that the Oct earnings vol levels are always the highest for the four surrounding quarters. This is pretty common in that the Sep/Oct months are seen as particularly risky in the stock market – so there’s more systematic risk. I bring this rather esoteric observation up to point out that the implied vol for this earnings cycle in AAPL is essentially priced like an Oct earnings cycle – the risk is elevated to that level.

Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We look to the weekly options to get an idea of the vol level expressed as dollars. The Apr27 Weekly 565 straddle is priced to ~$40.90 or 7.2% of the stock price. For a rough “range” of expected values, we can say that the option market reflects that AAPL will be inside [-14%, +14%] with 95% confidence (I know that’s not really what it says, but work with me).

In any case, the vol level into earnings for AAPL is elevated relative to the past five quarters and seven of the last eight. The vol reflects the risk premium normally seen in the Sep/Oct months – a level elevated due to systematic (rather than firm specific) risk. For those that recall the GOOG earnings analysis, this is essentially the exact opposite result. You can read that GOOG post here: Google Inc. (GOOG) - Earnings Preview and Pattern; A Substantial & Unambiguous Risk Premium Statement Reflected by the Options

This is trade analysis, not a recommendation.

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Michael Kors Holdings (KORS) - Stock and Vol Pop Intraday

KORS is trading $42.88, up 3.9% with IV30™ up 9.2%. The LIVEVOL® Pro Summary is below.



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Michael Kors Holdings Limited is a designer, marketer, distributor and retailer of women’s apparel and accessories and men’s apparel bearing the Michael Kors name and MICHAEL KORS, MICHAEL MICHAEL KORS, KORS MICHAEL KORS and various other related logos.

This is a vol note as the stock has taken off today in a down market, moving higher intraday. Let's start with the Tick Chart (one-day / one-minute ticks). The top portion is the stock, the bottom is the front month vol.



We can see that the vol popped early on, while the stock has seen a more methodical rise -- which continues into this writing as I see the stock ticking up to $43.39. What's odd is, I don't see any news.

Let's turn to the Charts Tab, below (~5 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see the stock pop on 2-14-2012 off of earnings, rising from $33.61 to $42.85 or 27.5%. On the vol side, we can see a relatively quiet implied right now, and an incredible tracking to the HV20™ after the earnings release.

Let's turn to the Skew Tab.



We can see an obvious vol difference between the second and first months. That's due to the next earnings release, which is due out in the Jun cycle. Given the reaction off of the last (and only) earnings release, that a large vol diff feels right.

Finally, let's turn to the Options Tab.



We can see the vol diff across the top by comparing the front two expiries: 41.31% for May and 50.97% for Jun. I do note that upside skew in the front month (and the move today).

This is trade analysis, not a recommendation.

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Ardea Biosciences (RDEA) - Insider Information Traded Before Takeover? You Decide...

RDEA is trading $31.58, up 51.5% with IV30™ down 68.3%. The LIVEVOL® Pro Summary is below.



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Ardea Biosciences, Inc. ( Ardea) is a biotechnology company focused on the development of small-molecule therapeutics for the treatment of serious diseases. Lesinurad, previously called RDEA594, the Company’s lead clinical candidate for the treatment of hyperuricemia and gout, is a once-daily, oral inhibitor of the URAT1 transporter.

This note unfortunately surrounds what I believe to be highly unusual trading prior to a takeover. First, there's the takeover news that has pushed the stock up over 50%:

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AstraZeneca entered into a definitive agreement Monday to acquire Ardea Biosciences Inc. for $1.26 billion.

Source: Philadelphia Business Journal via Yahoo! Finance -- AstraZeneca to buy gout drug developer Ardea , written by John George.
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This is a fascinating case study as the volume is very small -- nearly undetectable before the fact. But after the fact, it's hard to hide. Let's start with the set up. The company trades very lightly on the options side. A small snippet of the Stats Tab snapshot is included below.



Two points to note:

1. The company averages 27 total option contracts traded a day (20 calls and 7 puts).
2. The total OI in calls right now is 565 -- that's all open call positions on all strikes and in all expiries.

Now, let's look to the Options tab from today.



I've included just May and Oct expiries and highlighted the May 22.5 calls and Oct 20 calls. You'll notice the 187 OI in May and 220 in Oct. That accounts for 407/565 of the OI. But, still, so what, right? Here's the what... and it's a big one...

First, let's look to the montage for RDEA on Friday (so, one trading day before this news):



We can see that the May 22.5 calls had an OI of 12 -- and then 175 (nice even number) traded on Friday. If you look to the bottom of that snapshot, you can see the prices. The calls traded for $0.60 on $0.15 x $0.60 markets. Those are purchases...

Second, let's look to Thursday, or two trading days before the takeover news.



We can see that 200 (another nice round number) of the Oct 20 calls trades on 0 (zero) OI. Looking to the prices, you'll see a ~$3.30 execution price. Then looking to the NBBO, the argument becomes, "sheesh, those could be sales." No, they can't be... And here's why.

I've included two snapshots of the BBO's for those options the moment the trades were executed.





In the first image, we can see the NBBO was $2.70 x $3.50. Then a $3.30 bid came in and was hit. That's a buyer initiate trade. In the second image, the NBBO was $2.55 x $3.50, and a $3.20 bid came in and was hit. That too, is buyer initiated. Finally, looking to the first trade listed in that sequence (which is the latest trade in time), that $3.30 bid wasn't working anymore, and the trader simply lifted the $3.50 offer. In English, those were purchases, 20 lot bids up incrementally and finally lifting the offer for the 90 lot.

So, in totality, we have 75% of total call OI accumulated in call volume that equated to 1000% of the daily average trade volume two days in a row, right before the 50% takeover news. Is it possible this was "something else" other than insider trading?  Yes.  Do I think it was?  No.   I don't believe in that kind of luck.

For the record, the PnL accumulated was:

May 22.5 calls: 175 x 100 x ($9.05 - $0.60) = $147,875 (1,408%) in one trading day.
Oct 20 calls: 200 x 100 x ($12.00 - $3.30) = $174,000 (264%) in two trading days.
Total: $321,875 (421%)

This is trade analysis, not a recommendation.

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