Facebook (FB) - Vol Falls as Stock Rises; Two Vega plays if Vol is Too Low... But is It?

FB is trading $27.92, down 0.3% with IV30™ popping 9.3%. The LIVEVOL® Pro Summary is below.



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Facebook, Inc. is a United States-based company, which operates as a social networking Website. The Company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people's real-world social connections.

This is a stock and vol note -- specifically depressed vol in a stock that has been ripping of late. An interesting vol phenomenon now exists. I found FB using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

The six-months FB 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 impressive recovery over the last four weeks. On 11-9-2012, FB closed at $19.21 and as of today the stock is up 45% from that level.

But, this is a vol note -- and the phenomenon I'm interested in is how the implied is trading below both the short-term and long-term historical realized vols.

I've included a focused a 3-month vol chart, below.



We can see much more clearly how the IV30™ is trading well below the HV20™ and HV180™. The IV30™ is also trading low relative to its own history -- the range for IV30™ since FB started trading is [42.19%, 81.51%], putting the current level in the 22nd percentile.

In English, with the stock ripping the implied has dipped relative to all measures, but then ask yourself -- or anyone else for that matter, "do you feel confident with FB's valuation and recent run up?"

Let's look to the Skew Tab, and we can see another interesting vol set-up.



We can see how Dec is elevated to Jan -- which is a little weird since Dec nears the "tired" period at the end of the year. And yes, it's actually Jan expiry that has Christmas and New Year's -- it also has the post fiscal cliff world and the return of heavier trading volume (probably). The next earnings release for FB should be after Jan expiry, so we don't get that embedded vol even in there, but still, with vol this low and the stock rising so abruptly, a fiscal cliff decision ahead and then a re-focus on the Eurozone -- the vol in Jan feels... well, it feels low...

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



Across the top we can see the monthly vols are priced to 51.97% and 49.84% for Dec (monthly) and Jan. It seems like there is a long vega play on the board either through a calendar or a plain vanilla vol purchase. Ya know, then again, that could be totally wrong and a disastrous trade.

This is trade analysis, not a recommendation.

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