Friday, June 28, 2013

Research in Motion (BBRY) - How the Option Market was 'Wrong'; And We Knew It


BBRY is trading $10.75, down 25.8% with IV30™ down 25.4%. The LIVEVOL® Pro Summary is below.



This is the final piece to a there part series on BBRY earnings. It is a beautiful example of how the option market "appears" to have totally mis-priced an earnings event -- one that I was crowing about loud enough that Goldie agreed and sold the idea to their customers a day after we published it.

My first post was on Tuesday 6-25-2013 (see below), then on Wednesday 6-26-2013, Reuters publishde this nice piece:
STOCKS NEWS US-BlackBerry option prices seen too low ahead of results

Read the top story...

Here are the first two articles (click on the titles to read the posts):

6-25-213:Research in Motion (BBRY) - Earnings Approach, But is Vol Too Low? Is Obsolescence Still a Possibility?

6-26-2013: Research in Motion (BBRY) - UPDATE: Earnings Vol Falls Again; What's Going on With BBRY Earnings? Now Goldie Sees it too...

The take aways were simple:
1. The original note surrounded a curiously low vol given the event about to take place on 6-28-2013 BMO (i.e. earnings). See the Symbol Sumary from Wednesday, below:



Note the IV30™ level (78%), then read on...

2. For the prior three earnings releases the IV30™ hit 95.51%, 92.44% and 95.90% respectively for Sep-2012, Dec-2012 and Mar-2013.

3. This is a firm that once dominated its market, now doesn't, was trading dangerously close to penny stock status (in stock price not in market cap) and now we are about to see the future unfold. That is not a low risk event.

4. The Jun28 weekly options priced in a $1.70 move in the ATM straddle

5. The Skew was flat -- which was in fact bullish.

Today, the stock has moved more than 100% greater than that straddle value and the move is down -- a lot.

Bottom line, the option market did reflect too little risk (though this is one outcome of a probabilistic measure so there is no "right" or "wrong.") What is certain is the outcome today -- that the stock moved much more than the options reflected and this was not a surprise... At least not to us...

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Thursday, June 27, 2013

Arkansas Best (ABFS) - Everything at Once; Vol at Multi-year Highs, Stock at Annual High, Earnings Vol Priced below July Vol


ABFS is trading $19.79, up 2.4% with IV30™ down 1.2%. The LIVEVOL® Pro Summary is below.



Arkansas Best Corporation is a holding company through its subsidiaries is engaged primarily in motor carrier freight transportation. The Company’s principal operations are conducted through its Freight Transportation operating segment, which consists of ABF Freight System, Inc. and other subsidiaries of the Company that are engaged in freight transportation.

I found this stock using a real-time custom scan I built in Fidelity. This one hunts for calendar spreads between the front two monthly expiries. I've included the results of the scan below. But, there’s a second and third part to this story – like a multi-year in IV30™ and earnings that are likely in the back month (meaning the depressed vol month). Now, we have a vol story…

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

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



We can see pretty clearly how the front month (Jul expiry) is elevated to the second month (Aug expiry). It’s this vol difference that triggered the scan. But there is a lot more going on…

Let’s turn to the one-year ABFS 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 that absolutely explosive price appreciation since 5-1-2013, when the stock closed at $9.73. As of today, the stock is up more than 100% in less than two-months and that level is an annual high.

But, there’s more… a lot more… Let’s turn to an isolated two-year IV30™ chart, below.



There are ebbs and flows, but if we look at the far right hand side, we can see that other than the small dip today, the implied is trading at multi-year highs. So we have a stock up 100% in two-months and vol at multi-year highs and a calendar diff opened up between the front two-months… But there’s more yet…

Last year ABFS released earnings on 4-27-2012 and then on 7-31-2012. That means earnings fell in the Aug expiry and outside of Jul. This year ABFS released earnings on 4-30-2013, which would mean there is a likelihood that the next earnings release will be again be outside of Jul expiry but inside Aug.

Putting that altogether means that the elevated vol in Jul to Aug reflects not only multi-year highs in risk in Jul, but risk that supersedes that found in the earnings release. This is a really compelling coincidence of vol and stock price phenomena.

For completeness, the Options tab is included below.



Across the top we can see that Jul is priced to 81.53% and Aug is priced to 74.14%. Now we wait and see – what’s coming in the next four weeks (i.e. Jul expiry). The option market reflects a lot of risk – more so than in the last two-years.

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Wednesday, June 26, 2013

Research in Motion (BBRY) - UPDATE: Earnings Vol Falls Again; What's Going on With BBRY Earnings? Now Goldie Sees it too...


BBRY is trading $14.83, up 1.9% with IV30™ down 6.0%. The LIVEVOL® Pro Summary is below.



This is a follow up post to the article I wrote yesterday. It's all about earnings and earnings vol and what the heck is going on. You can read the prior post (which I do suggest), by clicking on the title below:
Research in Motion (BBRY) - Earnings Approach, But is Vol Too Low? Is Obsolescence Still a Possibility?

Here are the high points (I guess that implies there were low points?)... Anyway...

1. The above note surrounded a curiously low vol given the event about to take place on 6-28-2013 BMO (i.e. earnings).
2. For the prior three earnings releases the IV30™ hit 95.51%, 92.44% and 95.90% respectively for Sep-2012, Dec-2012 and Mar-2013.

As of yesterday, the BBRY Symbol Summary looked like this (below):



Note that the implied had risen 6.1 vol points and seemed about ready to make its climb to the elevated level  of prior earnings releases -- albeit a little slow to the come.  But then, today happened. Check that Symbol Summary at the very top, the implied is now down 5.1 vol points (down to 78.66%).  That puts IV30™ exactly in the 50th percentile -- so, in English, the implied is "average" for the year, but earnings are not an average time --not even close.

Let's take a look at the IV30™ chart over one-year in isolation, below.



We can clearly see the prior spikes into earnings (the blue "E" icon represents an earnings release date).  Look at the far right hand side -- that's the dip today. Normally I have pretty good grip on what's going on with vol (or so you would hope), but I have to say, I am confounded by this vol level.  I still believe there is a non-trivial (i.e. non-zero) chance that BBRY goes away in a year (or whatever) -- I mean, BBRY v10 better work.

In any case, this is a firm that once dominated the market, now doesn't, was trading dangerously close to penny stock status (in stock price not in market cap) and now we are about to see the future unfold.  That is not a low risk event.

Also fascinating is the Skew.  Check out the Skew Tab, below.



I've included weeklies and monthlies.  Ultimately, the point is, there is now skew.  Vol is flat -- which is not normal.  The upside is priced the same as the downside which is actually bullish.  To read more about skew, why it exists and what it means, you can go here:
Understanding Option Skew -- What it is and Why it Exists

It turns out goldie (GS) has latched onto this story and put out a note to customers to purchase the weekly straddles into earnings -- they too see this vol as uniquely low.  I saw it first!  Just kidding... Well, no I'm not...

I'm not sure the vol is a purchase, and actually, I couldn't say I was even if I was b/c this isn't advice -- but, I have to say, it has been a while since I have been so confused by what the option market reflects into an earnings release.

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Tuesday, June 25, 2013

Research in Motion (BBRY) - Earnings Approach, But is Vol Too Low? Is Obsolescence Still a Possibility?


BBRY is trading $14.34, up 1.7% with IV30™ up 7.7%. The LIVEVOL® Pro Summary is below.



Research In Motion Limited is a designer, manufacturer, and marketer of wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services, it provides platforms and solutions for seamless access to information, including e-mail, voice, instant messaging, short message service (SMS), Internet and intranet-based applications and browsing.

This is a vol note with earnings approaching -- but it's actually not an elevated vol note, rather, a curiously low vol given the event about to take place on 6-28-2013 BMO (i.e. earnings).

Let's start with the Charts Tab (one-year) 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 complete reversal and recovery for the firm based on BBRY version 10.  These guys were considered dead in the water -- even I pounded on them on a few occasions when I asked quite literally, if they had become obsolete.  Well, as of this writing the answer would be, no Ophir, they are not.  We can see the stock has risen from an annual low of $6.22 to now well more than 100% higher -- hope springs.

But this is actually a vol note, so let's turn to the one-year IV30™ chart in isolation, below.



First and perhaps most obviously, we can see the abrupt run up in the implied of late as earnings approach with IV30™ rising from 52.93% on 5-24-2013 (so a month ago) to now over 84%.  That's actually pretty normal.  What I find somewhat "abnormal" is the level of the implied right now.  For the prior three earnings releases the IV30™ hit 95.51%, 92.44% and 95.90% respectively for Sep-2012, Dec-2012 and Mar-2013.

If you look back at that isolated IV30™ chart and exclude today -- the implied was in the high 70's.  Now it's popping and my best guess is that it will continue to rise.  The oddity is how long the vol stayed depressed and how quickly it's rising.  Also, as we get further and further into the discovery of how good (or not) BBRY 10 will be, the company's future again is on the line.  If BBRY v10 fails, then we go right back to questions of obsolescence.  It feels like the implied should crack 100% withing a couple days, and if not, then is that vol too low?

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



Across the top we can see Jul vol is priced to 86.82% and Aug is priced to 75.42% (that vol diff is due to earnings).  Let's see how this plays out -- a mid 80% implied could be a bit low, and a super 100% vol could be too high.  There is a non-trivial chance the vol rips up in the next two days. Ya know, or not...

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Monday, June 24, 2013

STEC - Pre-takeover Order Flow Yields Two Types: A Good Speculator and a Possible Cheater


STEC is trading $6.71, up 86.9% with IV30™ down 69.2%. The LIVEVOL® Pro Summary is below.



STEC, Inc. (STEC) is a global provider of enterprise-class Flash-based solid-state drives (SSDs) that are designed for systems and applications that require high input and output (IO). The Company designs and develops its own SSD controllers, enhance them with firmware and integrate them with NAND flash media to manufacture SSDs.

This is an order flow note ahead of a takeover. I’m going to show two types of order flow – one that is incredibly suspicious, another that isn’t. Both made huge paper profits on the takeover news today, but it appears in two different ways.

First the news:
---
Western Digital (WDC) has agreed to acquire sTec (STEC) in a cash deal worth approximately $340 million. Under the terms of the deal, each WDC shareholder will receive $6.85 per share. The deal is expected to close by year end 2013.
Source: AP
---

The background to all of this is critical:

(1) The largest shareholder in STEC made a loud and public push for the firm to sell itself about six-months ago.
(2) The average daily volume in STEC is quite low relative to the trades we will be examining. I have included a snippet of the Trade breakdown section below.



Note the total average daily option volume over the last three-months for STEC is 568 options composed of 454 calls a day and 114 puts a day.

Now, the order flow. First, let’s look at what appears to be innocuous trading, with an intelligent but hedged speculation on a takeover.

Trading #1: Purchase of the Aug 4/5 Call spread

On 6-12-2013, it appears that ~1,400 Aug 4/5 call spreads were purchased for ~$0.15 (various prices). Note that combined, that makes ~ 2,800 options in just that trade, or nearly 5-fold the daily average.

That call spread is now worth full value ($1) and is up ~$119,000.

Notes to this trade:
(1) It was a spread, not a naked call purchase. If someone wanted to use inside information they would not have capped the upside – a naked purchase of the Aug 4 calls for ~$0.25 would be a $350,000 gain, or nearly 3-fold the gain on the spread.
(2) The trade date was 6-12-2013 – about two weeks before the announcement.
(3) The expiry chosen was August, giving the position more time but also costing more – again, not the finger print of a fraudulent trade.

Trading #2: Purchases of the Jul 3 calls naked

On 6-21-2013 (i.e. Friday) it appears that ~1,200 Jul 3 calls were purchased naked (uncovered) for ~ $0.60. Those calls are now worth $3.75 for a $380,000 gain.

Notes to this trade:
(1) The trade date is exactly one day before the deal – suspicious.
(2) The trades are in the front month – suspicious.
(3) The trades are naked (no spread) – suspicious.

In my opinion what we have here is one of three things:

(1) Cheaters all the way around (might even be the same people I both trades)
(2) No cheaters all the way around
(3) A cheater in one but not both of the trades

In my opinion, the spreads look either to be normal speculation on a firm known to be a takeover target or a very savvy trader using insider information knowing full well how to hide the obviousness of the trade.

In my opinion the naked Jul 3 call purchases are highly suspicious and could in fact be circumstantial evidence of malfeasance.

Either way, this is a really interesting examination of order flow pre-takeover.

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Wednesday, June 19, 2013

Hillshire Brands (HSH) - Vol Breaches Highs; Risk Elevates... But Why?


HSH is trading $34.22, up 2.0% with IV30™ up 10.69%. The LIVEVOL® Pro Summary is below.



The Hillshire Brands Company (Hillshire Brands), formerly Sara Lee Corporation, is a meat-centric food solutions company. The Company’s portfolio of meat includes Hillshire Farm Deli Select, sausage products and Hillshire Farm Hams.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. I've included the results of the scan below.

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

Let's look to the Charts Tab (one-year) 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 rather impressive and sustained up trend for ~10 months, then a bit of a dip off of that peak in May. But, this is really a vol story, so let's look at the one-year IV30™ chart in isolation.



What I note is the incredibly abrupt rise in the implied after the earnings vol crush.  The vol is up more than 50% from that dip after the last earnings release (blue "E" icon) into new annual high territory. The thing is, I don't know why...

Finally, let's turn to the Options tab, below.



Across the top we can see that Jun vol is priced to 40.63% (which is just two and a half days of option value), Jul is priced to 35.19% and Oct is priced to 32.89%.  There should be an earnings release in between July and Oct expiries.  Ultimately, this is an odd one -- vol rising abruptly, but not b/c of an earnings event.  Hmm...

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Tuesday, June 18, 2013

Bank of America (BAC) - Stock Rallies 150% in 1.5 Years; But Why and How? We Used to Call this Corruption...


BAC is trading $13.30, up small with IV30™ down 1.9%. The LIVEVOL® Pro Summary is below.



Bank of America Corporation (Bank of America)is a bank holding company, and a financial holding company. Bank of America is a financial institution, serving individual consumers, small and middle market businesses, corporations and Governments with a range of banking, investing, asset management and other financial and risk management products and services.

I remember a long time ago when I was a junior broker at PaineWebber (remember them?) and MO (Philip Morris) was the best performing stock in the DJIA for a decade (or whatever). One phone call in particular stuck in my memory -- one phone call out of thousands of cold calls. A gentlemen listened to my pitch, was nice enough to let me finish, and then we had this brief conversation:

"Son, what is the best performing stock in the Dow over the last ten years?"

I said, "Phillip Morris, sir. The largest tobacco firm in the US."

He replied, "If I could guarantee you that MO would be the best performing stock again over the next decade, would you recommend it for my equity portfolio?"

I said, "yeah, sure I would. I would try to get you the best performance possible within your risk limits."

He replied, "and that's why I won't do business with you."

And then he hung up...

The last time I wrote about BAC in a meaningful way was on Oct 3, 2011 in a post entitled:
Bank of America (BAC) - Follow Up: The Odds of the Largest Bankruptcy... Ever... (click the title to read the post).

That was a hot button and for over a year was the most widely read article in the four history of the blog. Today I write about BAC for a totally different reason; sort of... While I'm not writing about a bankruptcy with respect to financial solvency or financial distress, I am writing about a bankruptcy in ethics and morality. But fear not, my best guess is, BAC is not the only one of the large banks that deserves this analysis. Nor is this reserved for the large banks. How about this article:
Are Homebuilders Holding Off Construction to Game Rising Prices?.

Let's start really simple -- the two-year Charts Tab. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see that dip in the equity price in late 2011 (when I wrote the prior post). There was a feeling that the Countrywide acquisition might actually bring BAC to its knees. But, alas, it didn't, and the stock has climbed from below $5 to now over $13. Good for BAC shareholders and well done on management's side.

Let's take a look at the two-year IV30™ chart in isolation, below.



We can see the huge spike into the 140% range when the risk was building in the stock and the unthinkable was thinkable. But then we see the risk dissipating -- there were spikes, but we now see an implied below 30%. That's remarkable and it does move in concert with the rising stock price and the all but nil risk of bankruptcy.

For sake of comparison, I have include the same chart below, but added JPM (blue) and WFC (green).



While the risk in BAC was extraordinarily heightened relative to other two giant banks, the pattern is similar -- elevated in late 2011 and a quiet dissipation since.

So, OK... What was the point of this article?  I just wanted to point out a piece of the normal operating procedures for BAC (and possibly other banks).  Here we go:

BofA Paid Bankers More to Foreclose: Lawsuit (click on the title to read the article).

And some snippets:

---
Bank of America (BAC) routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.

"We were told to lie to customers," said Simone Gordon, who worked in the bank's loss mitigation department until February 2012. "Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect."

In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.

They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier "in-house" loans and paying bonuses to employees based on the number of new foreclosures they initiated.

The employees' sworn testimony goes a long way to explain why the government's Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.

Bank of America denied the allegations in the affidavits, which were filed in a Massachusetts lawsuit on behalf of dozens of BofA borrowers in 26 states.
---

NB: BAC has denied the allegations, and allegations are not necessarily the truth...

Usually I get kinda "soap-boxy " here, but I won't this time. I'll just say that shareholders and management have been rewarded with 150%+ gains in a year and a half and what have customers been rewarded with?

Reprise
I remember a long time ago when I was a junior broker at PaineWebber and Philip Morris was the best performing stock in the DJIA for a decade (or whatever). One phone call in particular stuck in my memory -- one phone call out of thousands of cold calls. A gentlemen listened to my pitch, was nice enough to let me finish, and then we had this brief conversation:

"Son, what is the best performing stock in the Dow over the last ten years?"

I said, "Phillip Morris, sir. The largest tobacco firm in the US."

He replied, "If I could guarantee you that MO would be the best performing stock again over the next decade, would you recommend it for my equity portfolio?"

I said, "yeah, sure I would. I would try to get you the best performance possible within your risk limits."

He replied, "and that's why I won't do business with you."

And then he hung up...

This is trade analysis, not a recommendation.






Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Monday, June 17, 2013

Perfect World (PWRD) - Stock Explodes as Vol Explodes; Is The Company in a Paradigm Shift?


PWRD is trading $16.61, up 5.2% with IV30™ up 21.2%. The LIVEVOL® Pro Summary is below.




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

Livevol Execution: Complex Trading Simplified



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


Perfect World Co., Ltd. is an online game developer and operator in People’s Republic of China. The Company primarily develops online games based on its game engines and game development platforms.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day.

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 one-year PWRD 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 an abrupt rise in price from 4-15-2013 to now. The stock has risen from below $10 to now over $16.60 and at one point as high as $17.25. In English, the stock is up ~65% in two months.

But there is also a vol story. I have included a myopic three-month IV30™ chart below, in isolation.



We can see that the implied was as low as 31.94% and is now just about 55% for nearly a triple in three-months. That low level was not off of an earnings release – so it’s no a contrived data point. Together with the stock chart we see a stock exploding both in price and vol simultaneously. Very interesting.

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



Across the top we can see that Jun vol is priced to 52.64% ad Jul vol is priced to 54.74%. I don’t believe either of those two expires will have an earnings event so, in English, the option market reflects this mid 50’s IV30™ through Jul expiry. There is a pop in Sep vol (59.47%) due to an earnings release.

This is an interesting story – is PWRD now just a totally different company with respect to valuation (stock price) and risk (implied vol)? Or is this some sort of weird blip?

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This is trade analysis, not a recommendation.

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Tuesday, June 11, 2013

VIX - Is it Mis-priced? Is the Vol of Vol Mis-priced? Somethings I Bet You Didn't Know, But Wish You Did


The VIX spot is trading $16.88, up 9.3% with IV30™ up 7.9% (that's the vol of the vol). The LIVEVOL® Pro Summary is below.




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The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.

I'm examining the vol of the VIX today -- and by examining I am pointing out one stark empirical phenomenon, which is... The implied vol of the VIX seems too low.  Yeah, I said it... (I also said "appears" so no law suits allowed -- this isn't advice).

Like a 3-act movie, I will start with an introduction into the characters and our protagonist and end with the "turning point", build a little, get caught in no man's land by the middle of the second act ("the point of no return"), and close big with the final act, "all hope is lost," and then a nice and neat resolution.

For a teaser, I will end up explaining this chart:



But we're not there yet... So, let's start with a two-year chart of the VIX spot, below.


This is our protagonist.  We can see his object of desire is to appropriately reflect the risk over the next 30-days in the S&P 500 Index.  His (her?) path is a bumpy one -- there's a gap between his expectation and reality, and with each gap, he has to do more to reach his object of desire. This builds his character and is in fact the same thing as story.  Like any good screenplay, it has been a bumpy ride for the protagonist, reaching as high as ~48% and as low as 11.05%.

But the story gets more interesting as we look a bit more myopically.  Let the second act begin.  Below we are looking at a three-month chart of the VIX spot.


The choppiness is building.  In fact, it's within this three-month window that the VIX hit its multi-year low of 11.05%.  It has also been as high as 18.51% which means its upper range in the last quarter has been 67.5% higher than its low.  Remember, this measures the 30-day forward looking risk of the S&P500 -- this ain't a micro-cap bio-tech index.

An interesting headline I saw via Yahoo! Finance read something like "100-Point Dow Swings Are Back."  A quote from it is: "For the seventh time in the past ten sessions, the Dow Jones Industrial Average (^DJI) is moving at least 100 points, up or down, from the previous close."  The point was clear, the market may be moving away from slow and steady (and up all the time), to, not slow, not steady and not up all the time.

Finally, the last act.  This image is breathtaking... and not just b/c it has lots of pretty colors.


The legend is at the top, but to make it easier, just know this.

I have included the following historical realized vol measures:

HV60™: The historical realized volatility of the VIX spot over the last 60 trading days.
HV90™: The historical realized volatility of the VIX spot over the last 90 trading days.
HV120™: The historical realized volatility of the VIX spot over the last 120 trading days.
HV180™: The historical realized volatility of the VIX spot over the last 180 trading days.

Note, all of these measures are the darker colors and all are on top of the four measures at the bottom.


I have included the following implied vol measures:

IV60™: The implied forward looking volatility of the VIX spot for the next 60 calendar days.
IV90™: The implied forward looking volatility of the VIX spot for the next 90 calendar days.
IV120™: The implied forward looking volatility of the VIX spot for the next 120 calendar days.
IV180™: The implied forward looking volatility of the VIX spot for the next 180 calendar days.

Note, all of these measures are the brighter colors and all are below the four measures at the top.

So what?  For every measure of realized vol vs. it's counter part in implied vol, the VIX IV is measuring (reflecting) less forward risk than has been realized in the past.  Yeah, less risk is reflected in the VIX than has been realized in the past.

So, if you believe that the market is now in a period of larger moves more often, then you wouldn't believe that the forward risk of the VIX spot would be less than the past realized movement -- but that is exactly what the VIX options reflect.

My take?  If there is a 50/50 chance that  VIX vol rises, then the options are mispriced (they would be exactly equal to HV if that was the case -- sort of...).  Right now it looks like the option market reflects a higher chance that the VIX spot moves less than it has in the past.. and that, does not seem sound... Ya know, or it does?...


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This is trade analysis, not a recommendation.

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SodaStream (SODA) - Vol Explodes, Stock Nears All-time Highs; Options Point to Near-term Risk


SODA closed at $76.11 on Monday, up 5.0% with IV30™ popping 23.8%. The LIVEVOL® Pro Summary is below.



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SodaStream International Ltd., formerly Soda-Club Holdings Ltd., along with its subsidiaries, is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. This is truly a fascinating story where a stock is nearing all-time highs and vol is exploding with the stock rise.

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 goal with this scan is to identify names with rising IV30™ that also have 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 SODA 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 remarkable Y-O-Y return from $34.67 to now well more than 100% higher. We can also see more myopically how the stock has been headed up rather abruptly in the last few months. SODA just broke an annual high in stock price today and is dangerously close to breaching an all-time high (~$80).

But, this is also a vol story, so let’s look to the isolated one-year IV30™ chart.



We can see the hypnotic ebb and flow of vol around earnings, but try to look past that and check out the vol move of late. We can see a rather abrupt directional change where the implied has risen from ~38% to now over 66% -- and that’s after earnings. So this is a great example of a stock that has rising vol as the stock price also rises.

Let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 78.72% for Jun and 60.79% for Jul. That’s a sizable calendar diff. Note that the Oct, Jan’14 and Jan’15 expiries continue a monotonic vol drop by expiration. In English, the risk for SODA as reflected by the options market is hyper focused on the near-term.

Finally, let’s turn to the Skew Tab to get a better look at the vol diff between the front two months.



The shapes are the same – that is, parabolic, which reflects both upside and downside tail risk, but more obvious is the sizable premium in the Jun options (in terms of vol) relative to Jul. This is truly a fascinating story where a stock is nearing all-time highs and vol is exploding with the stock rise.


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This is trade analysis, not a recommendation.

Legal Stuff:
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Monday, June 10, 2013

Elan (ELN) - Takeover Bid Shunned Again -- Options Say, "Something is Coming Soon."


ELN is trading $13.56, up 0.9% with IV30™ up 29.3%. The LIVEVOL® Pro Summary is below.



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I found this stock using a real-time custom scan. This one hunts for vol gainers on the day.

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 goal with this scan is to identify names with rising IV30™ that also have 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 ELN 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 impressive price rise from $10.12 to now over $13.50; so over 30% in six-months.  We can also see that gap up on 6-7-2013 (aka last Friday).  This firm (ELN) is embroiled in a sort of cat and mouse game with Royalty Pharma which has made bids (and continues to make bids) for the firm, continually shunned by ELN asking for more.  Here's a quick news snippet from Friday:

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Shareholders in Elan have seen a bump in the value of their stock following the latest buyout offer from Royalty Pharma. Today, the latter upped its bid for the Irish company to $13 per share, a half-dollar improvement over its most recent bid. Additionally, Royalty Pharma is willing to pay a $2.50-per-share "contingent value right" if Elan's star multiple sclerosis drug Tysabri reaches certain sales goals.

The new offer is still not good enough for Elan's board of directors. In a tersely worded response to it, the company quoted the board as saying simply that its shareholders "are strongly advised to take no action in relation to the Royalty Pharma offer."

Source: The Motley Fool via Yahoo! Finance - Royalty Pharma Increases Bid for Elan, written by Eric Volkman.
---

Well, there you go. In the meantime, the implied vol (risk) is elevating quite substantially for ELN shares. Let's turn to the six-month IV30™ chart, below.



We can see the abrupt rise since 5-22-2013 when the implied closed at 17%.  Today we can see it trading at 38.42% so more than a doubling in the short-term implied in just three weeks.   That is something...

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



Across the top we can see the monthly vols are priced to 48.585 in Jun and 33.545 in Jul.  Neither of those expiries should have an earnings release.  I have included the Skew Tab, below, to better illustrate the vol diff that has opened up between the front two expiries.



We can see that rather dramatic vol diff in the time spread. The option market reflects much more risk in the near-term (the next two weeks) than it does in Jul expiry. In English, the option market says, "news is coming."

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This is trade analysis, not a recommendation.

Legal Stuff:
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Friday, June 7, 2013

Tibco Software (TIBX) - Vol Breaches Annual High Well Ahead of Earnings; Buckle Up


TIBX is trading $21.19, up 2.4% with IV30™ up 0.9%. The LIVEVOL® Pro Summary is below.




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

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 one-year TIBX 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 poor Y-O-Y return with the stock trading $26.67 one year ago and down substantially as of today from that level.  But this is a vol note, so let's turn to a one-year IV30™ chart in isolation, below.



The firm has earnings due out at the end of Jun expiry (Jun 20th), so elevated vol is expected and in fact it would be an anomaly if the vol wasn't rising.  But that's not the point, the point is, look how high the implied has gotten with still two weeks to go before earnings.  The blue "E" icons represent past earnings dates, and the IV30™ today has risen well higher than those levels.  As the earnings date approaches, the vol should continue to rise (unless there is a pre-release or guidance or whatever) and that could mean consistently new highs in implied vol over the next two weeks.

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



Across the top we can see the monthly vols are priced to 70.80% for Jun and 50.89% for Jul.  That vol diff is due to the earnings release at the end of Jun expiry. But, at some point, the vol difference may grow so large (relative to the past) that it becomes... something... Ya kow, or not...

This is trade analysis, not a recommendation.