Northrup Grumman (NOC) - Vol Pushes into New Annual High; Earnings Vol Left Behind. Defense Industry Holding Breath for Fiscal Cliff?

NOC is trading $67.18, down 0.8% with IV30™ up 7.9%. The LIVEVOL® Pro Summary is below.



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Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services.

This is an almost identical post to the one I wrote on LMT a couple of days ago. Rising vol to new highs and earnings vol priced below the front. You can read the LMT post here:

Lockheed Martin (LMT) - Vol Reaches New Annual High; Fiscal Cliff Related?

I found NOC using a real-time custom scan. This one hunts for elevated vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated to its own annual history (at least in the 80th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The six-month NOC 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 relatively quiet period with the price moving from $61.73 to now just over $67 in half a year. The 52 wk range in stock price is [$55.38, $70.65].

But this is a vol note, so let’s focus on the IV30™. I have included the six-month implied chart in isolation, below.



The trend is pretty obvious -- up. The vol was trading below 14% in late summer and is now nearly twice that level. The 52 wk range in IV30™ is [13.39%, 24.74%], putting the current level well into new annual high territory.

The story gets even more interesting when we look to the Skew Tab, below.



We can see the shape is normal and quite pretty really, but note how Jan is elevated to Feb. This is odd because the next earnings release for NOC should be in the Feb expiry but outside of Jan. In other words, the vol is topping an annual high today, but the earnings vol is not following suit.

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



Across the top we can see the monthly vols are priced to 27.46% for Jan and 25.10% for Feb. This automatically triggers a thought in my mind to analyze a calendar spread of some sort. Then again, with the implied reaching an annual high right now, selling the font could be a disaster. This will be a very interesting one to watch unfold for sure. I'll quote myself from the LMT post, "If this is fiscal cliff related watch for climbing vol and then a potential vol crush after the news."

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Herbalife (HLF) - Vol Pattern Emerges as Cataclysm has Ended... For Now...

HLF is trading $10.37, up 3.5% with IV30™ down 7.2%. The LIVEVOL® Pro Summary is below.



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Herbalife Ltd. is a global network marketing company that sells weight management, nutritional supplements, energy, sports and fitness products and personal care products through a network of approximately 2.7 million independent distributors, except in China, where the Company sells its products through retail stores.

For those of you that don't know what's been going on with HLF, suffice it to say the stock was down more than 35% in a few days again when another noted shot-seller bashed the firm on CNBC. Vol exploded to new annual highs and the stock imploded.

I found HLF today stock using a real-time custom scan I built that hunts for calendar spreads between the front two monthly expiries. It turns out, after the disaster of the last few days, the vol has been collapsing of late.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

The goal with this scan is to identify back months that are cheaper than the front by at least 10 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The six-month HLF 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 the cataclysm that was the last few trading days with the stock falling from over $45 to as low as $24.24.

The vol side is even more interesting. The implied absolutely exploded to multi-year highs, reaching as high as 147%, but has recently been falling quickly as the stock has made a small recovery. This unevenness in the vol has created an interesting phenomenon in the skew.

Let's turn to the Skew Tab, below.



We can see how Jan is elevated to Feb, which in many respects make sense -- the uncertainty surrounding the stock price is hype focused on the short-term after that implosion and therefore Jan vol is elevated to the back. We can also see the monotonicity of the vol levels -- they drop as we go back into further out expiries. The Aug vol levels are back to sort of "normal."

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



Across the top we can see the monthly vols are priced to 118.69%, 103.59%, 89.26% and 80.83%. This is an interesting one to examine where owning long-term vega could be offset with spread front month extremely elevated vega, and can be done several months in a row. Of course, if the stock moves huge and the position isn't diagonal, that premium paid could turn into a 100% loser. Just an interesting note I thought was worth checking out.

This is trade analysis, not a recommendation.

Lockheed Martin (LMT) - Vol Reaches New Annual High; Fiscal Cliff Related?

LMT is trading $92.24, down 0.6% with IV30™ up 10.9%. The LIVEVOL® Pro Summary is below.



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Lockheed Martin Corporation is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products. The Company also provides a range of management, engineering, technical, scientific, logistic, and information services.

I last wrote about LMT in Nov as a broader piece of the defense sector. You can read that post here:
Defense Sector Risk Rises, Vol Correlations Rise, Election Looms Large

I've included the Symbol Summary from that prior article below as a reference.



I found LMT today stock using the real-time custom scan that hunts for elevated vols. Today it has breached an annual high in the implied.

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


The goal with this scan is to identify short-term implied vol (IV30™) that is elevated to its own annual history (at least in the 80th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The LMT one-year 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).



One the stock side we can see a nice y-o-y return, as this was an $81.32 stock a year ago. The 52 wk range in LMT is [$75.45, $94.74], so the stock is close to that annual high.

But ultimately, this is a vol note. I have included the IV30™ one-year chart in isolation, below.



We can see the that with the spike today the implied has now hit an annual high. In the prior (pre-election) note listed above, I discussed the risk embedded in these companies. What's odd is, the election is over, but the vol is even higher now. This feels very fiscal cliff / budget related. While LMT does have earnings due out either at the end of this expiry or in the beginning of next, the elevated implied feels like it's due to something "else."

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



Across the top we can see the monthly vols are priced to 23.14% and 22.32% for Jan and Feb, respectively. That Feb expiry earnings mark is just a projection and based on the vols for the front two months, it feels like the date is rather ambiguous. If not, then whatever news is due out in this expiry trumps earnings and has pushed vol to a new annual high. If this is fiscal cliff related watch for climbing vol and then a potential vol crush after the news.

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Herbalife (HLF) - Short Seller Smashes Stock Again; But Reaction to Ackman is Different than Einhorn

HLF is trading $27.49, down 18.4% with IV30™ up 67.3%. The LIVEVOL® Pro Summary is below.



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Herbalife Ltd. is a global network marketing company that sells weight management, nutritional supplements, energy, sports and fitness products and personal care products through a network of approximately 2.7 million independent distributors, except in China, where the Company sells its products through retail stores.

So this is obviously a stock and vol note. In fact, this is day two of a cataclysmic decline in stock price and rise in vol for HLF and is all based on comments made by noted short seller Bill Ackman.

I've included the Symbol Summary for HLF as of three days ago, then yesterday, then today one more time, below:









So, the stock has dropped from $42.50 to now $27.49 in four days as the implied has exploded from ~52% to now ~150%. In terms of the content behind Ackman's analysis, I suggest reading the two posts below -- it's pretty nasty but feels very factual. Both of these articles are provided by The Motley Fool.

Bill Ackman's Analysis on Herbalife (Part I)

Bill Ackman's Analysis on Herbalife (Part II)

Let's turn to the one-year Charts Tab 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 abrupt drop of late, well into a new annual low and in fact, well into a new multi-year low. What I also note is that abrupt drop in early May -- the stock fell from $70.32 on 4-29-2012 to $46.20 just four days later. That drop was keyed off of questions from another noted short seller, David Einhorn. So, in English, this is the second time the stock has catapulted down after well known fund managers have questioned HLF's management. The issues have primarily been the distribution channel and pricing through that channel.

I do note that once the stock fell off of Einhorn's comments (or lack of comments?), the stock did not ever recover to pre-comment levels -- it has hovered at that lower level until... well until the last four days.

I've included the one-year vol chart below.



We can see this time that things are different. The stock decline for both has been ~35%, but the vol has absolutely exploded this time around. After Einhorn's comments the implied was just under 100% at its peak (closing value). Today we see an implied well over 150%.

Finally, let's tun to the Options Tab, below.



We can see the monthly vols are priced to 154.05%, 134.14% and 111.86% for Jan, Feb and May, respectively. While the option market obviously reflects higher vol in the near-term -- that vol is elevated well into May. This time around it feels like the option market reflects not just the risk of a downside move (further), but perhaps the risk of HLF going away as a going concern.

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NYSE Euronext (NYX) -- Unusual Trading in NYX Takeover and Potential Hidden Trades

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NYX is trading $32.01, up 33.10% with IV30™ down 13.3%.The LIVEVOL® Pro Summary is below.

NYSE Euronext is a global operator of financial markets and provider of trading solutions.

I found NYX because of the price gain which ultimately is due to a much rumored takeover.  The news is that NYX will be purchased by Intercontinental Exchange for a stock and cash deal worth $8.2 billion

This deal has been on-again-off-again for more than a year with questions surrounding regulatory approval and the such.  I mention the length of time these rumors have swirled because there may be suspect activity that had taken place.

Let’s start with the Options Tab, below.

I have highlighted the Jan 24 calls – note the OI of 10,343 contracts. I have included the Options Tab from 12-6-2012 below to begin the discussion.



Note that the OI on 12-6-2012 was just 1,214, but 2,525 calls traded on that day. To make a long story short, I have included a chart of the Jan 24 calls OI with dates highlighted to focus the analysis.



What we can see is that starting on 12-6-2012 and moving to 12-17-2012, the OI started gapping up. It moved from what was a steady 1,124 to now over 10,000 in less than two weeks. And, what do you know, three days after the last bulk of ATM option purchases, the company announces its merger.

I see approximately ~9,000 calls purchased in that short window costing ~$0.60 (on average) that are now trading at ~$8.00, for a ~1,200% gain in fourteen calendar days. That’s about a $6.5 million gain. How fortunate…

Not convinced this is insider trading… That’s OK, there’s more… A lot more…

The largest OI in any call line in any month on any strike all the way out to the Jan 2015 options in NYX is in those Jan 2013 24 strike calls. Hmmm…

Even more interesting is how the position was accumulated. Rather than lifting offers, an astute trader bid up the calls and let those bids get hit. The purpose of this is two-fold:

1. Purchasing the calls for a slightly lower price
2. The trades look like sales since they trade on the bid

Want some evidence of this astute trading? Sure – here are the largest trades on 12-6-2012 in those calls.



Note the price was $0.40 for all of those trades and the NBBO reflected $0.40 x $0.41. So a sale right? Not quite. Below I have included a level II view of those options as they traded.



What we can see is that the NBBO was $0.37 x $0.41, but then a $0.40 bid for 1,224 contracts came in. That bid was hit, and got the initiator long while making the trades look like sales.

In my humble opinion, this is a dangerously suspicious case where insider information may have been used to create a windfall of wealth in two-weeks time.  More than that, there is “circumstantial evidence” of a trader trying to hide the trades.  That’s how a pro would do it – that’s how a pro sees it… and that’s what I fear has happened. Of course, suspicious trading is NOT evidence of malfeasance – sometimes suspicious trading is just good luck.

This is trade analysis, not a recommendation.

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The Options Trading World has Been Changed... Again -- Disruptive Technology Unveiled: Livevol® Execution is Here

While we believe this to be the most widely read options trading blog in the world, there's one thing I have never done for you -- the readers -- and that's talk about execution. We all know I post analysis and snapshots from LIVEVOL® Pro (LVP), after all, this is the Livevol® blog.

But aside from that, I believe that LVP is the best options trading analytics platform in the world -- I have used it to trade for years, including when I was a market maker on the NYSE ARCA options floor and well before I was affiliated with the company LIVEVOL® in any way.

Today, I believe LIVEVOL® has changed the trading world... again. Livevol® Execution (Livevol X) is now available to anyone.

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Level 3 Comm (LVLT) - Calls Trade, Stock Spikes, But Vol Remains Depressed

LVLT is trading $23.17, up 6.7% with IV30™ up 12.8%. The LIVEVOL® Pro Summary is below.



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Level 3 Communications, Inc. (Level 3) is a facilities-based provider of a range of integrated communications services.

This is a vol and stock note along with some order flow.  Ultimately it's the recent move in the stock and the lack of a move in the vol that caught my eye.  More on that in a sec...

The company has traded over 17,000 contracts on total daily average option volume of just 1,278. Calls have traded on a 5:1 ratio to puts with the largest trades amounting to a Jan 22/Mar 24 call spread -- although I'm not sure the legs traded together. The Stats Tab and Today's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that both the Jan 22 and Mar 24 calls are mostly opening (compare OI to trade size). Across the top I also note the vol increases by expiry, with Dec showing the largest rise on the day.



Finally, the Charts Tab (six months) is 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 abrupt upswing reversal since late Nov. On 11-27-2012 the stock closed at $18.19, so as of this writing it's up 27.4% in less than a month. The 52 wk range in stock price for LVLT is [$16.36, $27.99].

What really caught my eye in this name is the vol chart. I have included the one-year IV30™ chart below.



We can see that while the implied is popping today, it's still low relative to its own annual history. The 52 wk range in IV30™ is [36.05%, 60.07%], putting the current level in just the 21st percentile. I dunno, with a stock move up that abruptly in such a short period of time and large call spreads trading, at the very least an examination of the vol levels may be worthwhile.

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Riverbed (RVBD) - Vol Nears Annual Low

RVBD is trading $18.73, up 5.5% with IV30™ down 3.6%. The LIVEVOL® Pro Summary is below.



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Riverbed Technology, Inc. (Riverbed) has developed solutions to the fundamental problems associated with information technology (IT) performance across wide area networks (WANs).

I found this stock using a real-time custom scan. This one hunts for depressed vols.

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


The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The six-month RVBD 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 while the stock made a rather abrupt climb in the middle, ultimately, over the half year, the stock is almost unched. But again, I do note the gap up on earnings and gap down a few days after. The 52 wk range in stock price is [$13.30, $30.73].

In order to get a better feel for the IV30™, I've included a one-year chart with just that measure.



We can see that the implied is hovering near an annual low as the stock itself has found a kind of "quiet period." The 52 wk range in IV30™ is [39.44%, 91.99%], putting the current level in the 4th percentile.

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



Across the top we can see the monthly vols are priced to 41.79%, 41.74% and 54.745 for Dec, Jan and Mar, respectively. The Mar expiry does have an earnings event embedded in it and thus the elevated vol. This one is compelling to me simply b/c of the depressed vol -- again, right now doesn't feel like an obvious time for vol to be at or near annual lows. Or... it does?...

This is trade analysis, not a recommendation.

Coca-Cola (CCE) - Elevated Vol in Dec and Depressed Earnings Vol Brings to Light Compelling Vol Diff

CCE is trading $31.00, down 0.4% with IV30™ down 2.4%. The LIVEVOL® Pro Summary is below.



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Coca-Cola Enterprises, Inc. (CCE) markets, produces, and distributes nonalcoholic beverages. The Company serves a market of approximately 170 million consumers throughout Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden.

This is a cool calendar spread note -- one which shows not just a vol diff, but one where earnings vol can be owned for less than non-earnings vol and potentially spread on a 2:1 ratio.

I found CCE using a real-time custom scan I built that hunts for calendar spreads between the front two monthly expiries.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

The goal with this scan is to identify back months that are cheaper than the front by at least 10 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The one-year CCE 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 very nice appreciation over the last year -- a move from $25.26 to now $31 on a 25% vol stock. I do note the very recent stock decline.

On the vol side we can actually see how the implied has risen well above the two historical realized measures but I also note how the implied has been dipping with the recent stock drop -- a bit odd.

But, ultimately, this is a skew note, so let's take a look.



We can see two phenomena here, both of which are quite compelling. First, note how elevated Dec vol is to the back two expiries. Second, note that earnings should be in the Feb cycle, yet Feb is the lowest priced (in terms of vol) of the front three expiries -- very odd. The last two earnings reports for CCE in calendar Q1 were 2-11-11 and 2-9-12. It's a very reasonable assumption that the next earnings release will also be in early Feb.

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



Across the top we can see the monthly vols are priced to 39.03%, 24.71%, 24%. An interesting position to examine would be to own Feb with earnings and sell that elevated Dec. If the trade works out, then selling the Jan vol still covered by Feb could turn into a very cheap Feb position protected by an earnings release embedded in the options. Ya know...or not...

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