Facebook (FB) - Update: Earnings Preview; Skew Bends Back Down; Did the Market Self-Correct a Bubble Before it Burst?

FB closed Tuesday trading at $49.40, down 1.7% with IV30™ down 1.7%. The LIVEVOL® Pro Summary is below.



Facebook, Inc. (Facebook) is engaged in building products to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

This is a quick follow up the article I posted on Friday 10-25-2013. You can read that post by clicking n the title, below:

Facebook (FB) - Reverse Skew; Upside Risk as Volatility Explodes and Stock Hits All-time Highs. Are We in a Bubble?

There was a fascinating phenomenon in FB skew. I've included a bunch of snippets from that prior article, below. But, let's start with the Symbol Summary from that day:



So we can see the stock slipping, and oddly, the volatility slipping even as we approach earnings.  Note that on Tuesday,the Dow as up 0.7% and S&P 500 was up 0.6% as the VIX rose 0.8%.

There was an unbelievably negative report out today on FB basically crushing it as an advertising platform, which IMHO was way overblown.  Here are some snippets:

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Forrester, the respected market research group, has just published a brutal report on Facebook (FB) based on a survey of 395 marketing executives. The conclusion: "Facebook creates less business value than any other digital marketing opportunity ... [so] ... Don’t dedicate a paid ad budget for Facebook."

Facebook responded that the report was "illogical and ... irresponsible."

Source: Business Insider via Yahoo! Finance; Facebook is Doomed: Forrester Says Ads Tell a Sad Story.
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I think the report fails to recognize that FB stock as been ripping b/c of mobile ads, not desktop ads. There's a lot more I find curious about the note, like a basic disregard for the entire marketing profession's ability to understand value in general and online marketing in specific, but I'll leave that to the reader.

The story I want to discuss is much more interesting (to me).  Here are some snippets from the prior post, and a dramatic change over the last two days to the phenomenon I wrote about.
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Friday's Blog

10-25-2013
We can see that the options recently hit an all-time high in the implied and are trading higher to any prior earnings release other than literally the first one after IPO. So, the option market reflects risk, right? Well, yeah, but not the kind you're thinking of...

Let's turn to the Skew tab as of Friday's close.



I have only included the Nov1 weekly options (earnings are due out 10-30-2013). So this is pure earnings volatility we see. And what do we see?...

Notice how the OTM calls are priced higher than the OTM puts. yeah, that's right, there is reverse skew in FB options reflecting greater likelihood of an upside move than a downside move. So, with the stock exploding to new all-time highs, this $126 billion market cap social media company is showing upside potential over downside risk in this earnings release. Whoa...

And is this "normal?"

No, on two counts.

1. Option skew normally shows higher volatility in the OTM (out-of-the-money) puts than OTM calls. You can read about what option skew is and why it exists by clicking on the title below:

Understanding Option Skew -- What it is and Why it Exists

2. More specific to FB, just look at the option skew on 7-24-2013 (the day of the last earnings release)



I know it's not the prettiest picture of all time due to some scaling issues, but this was a $26 stock ahead of earnings, you can see that strike price on the horizontal axis. Note how the strikes to the right (OTM calls) of ATM are flat, while the strikes to the left (OTM puts) are elevated. Yeah, FB didn't show this reverse skew last time. And more... the IV30™ into the last earnings report was 46%; today it sits just below 74%.

We're talking about hugely elevated risk, a decided upside bias in the option market and a ripping stock. You know what I call that?... A bubble... And you know what happens to bubbles before they burst?... they rise.
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But today, my how things have changed. Let's look at the Skew Tab as of the close on Tuesday and once again the Skew Tab from Friday, below:

Tuesday


Friday


Note how that upside skew has bend down over the last two trading days.  In English, the upside potential that the option market reflected in the OTM calls has totally reversed. Now the OTM calls show lower volatility than the ATM options and in fact have started to even out with the OTM puts.

I tell you something else... I don't think it was this research report, I think it might actually be the market "self correcting" a bubble before it forms.  As I saw it last time, if the skew continued to rise to the upside and then FB stock exploded up on perhaps good but not unbelievable earnings (like GOOG did; you can read that post here: Google (GOOG) - Are We in a Bubble? Earnings Good, but Stock Hyper Reacts to Upside), then I felt like we were squarely in a bubble (no reverse pun intended).

I actually see this easing of the upside skew as a good sign for the broader market. Now, let's see what FB delivers on earnings and the stock reaction to that news.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb


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 disclaims 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.

Facebook (FB) - Reverse Skew; Upside Risk as Volatility Explodes and Stock Hits All-time Highs. Are We in a Bubble?

FB closed Friday trading $51.95, down 0.9% with IV30™ down 0.7%. The LIVEVOL® Pro Summary is below.



Facebook, Inc. (Facebook) is engaged in building products to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

This is all about earnings and a phenomenon that appears in FB options that has some fascinating implications about sentiment (about FB and in my opinion, about the market). For those of you that want the headline up front, here you go: FB option skew bends up to OTM calls ahead of earnings.

For those of you that want the details or have no idea why that matters (or even what that is)... here we go.

Let's start easy, with the two-year FB 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 two phenomena that pop out at me:

1. The stock has been ripping, up nearly 200% from an annual low of $18.87.

2. FB spasmed off of the last earnings release, rising from $26.51 to $34.36 in one day, or a 30% rise. OK, keep hat in mind for later.

Next, let's turn to the two-year IV30™ chart in isolation, below.



We can see that the options recently hit an all-time high in the implied and are trading higher to any prior earnings release other than literally the first one after IPO. So, the option market reflects risk, right? Well, yeah, but not the kind you're thinking of...

Let's turn to the Skew tab as of Friday's close.



I have only included the Nov1 weekly options (earnings are due out 10-30-2013). So this is pure earnings volatility we see. And what do we see?...

Notice how the OTM calls are priced higher than the OTM puts. yeah, that's right, there is reverse skew in FB options reflecting greater likelihood of an upside move than a downside move. So, with the stock exploding to new all-time highs, this $126 billion market cap social media company is showing upside potential over downside risk in this earnings release. Whoa...

And is this "normal?"

No, on two counts.

1. Option skew normally shows higher volatility in the OTM (out-of-the-money) puts than OTM calls. You can read about what option skew is and why it exists by clicking on the title below:

Understanding Option Skew -- What it is and Why it Exists

2. More specific to FB, just look at the option skew on 7-24-2013 (the day of the last earnings release)



I know it's not the prettiest picture of all time due to some scaling issues, but this was a $26 stock ahead of earnings, you can see that strike price on the horizontal axis. Note how the strikes to the right (OTM calls) of ATM are flat, while the strikes to the left (OTM puts) are elevated. Yeah, FB didn't show this reverse skew last time. And more... the IV30™ into the last earnings report was 46%; today it sits just below 74%.

We're talking about hugely elevated risk, a decided upside bias in the option market and a ripping stock. You know what I call that?... A bubble... And you know what happens to bubbles before they burst?... they rise.

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



We can see the Nov1 weekly 52 strike price reflects a $7.10 move off of earnings from $52. I have also highlighted the $46 strike puts and the $58 strike calls. Note both of these are $6 out of the money, but the calls are worth $1.47 (122.45% volatility) and the puts are worth $1.09 (118.80%). That is a specific example of the skew shape being "reversed," where the OTM calls are priced higher than their congruent OTM puts.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb


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 disclaims 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.

Archer Daniels (ADM) - Stock Breaches 5-year High as Volatility Breaches Annual High into Earnings. Is This Equilibrium?

ADM is trading $39.55, up 0.9% with IV30™ up 6.1%. The LIVEVOL® Pro Summary is below.



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Archer-Daniels-Midland-Company, is engaged in the processing of oilseeds, corn, wheat, cocoa, and other agricultural commodities. The Company manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.

I found this stock using a real-time custom scan. This one hunts for elevated vols. Now this firm does have earnings due out on 10-29-2013 (BMO), but the stock price has just breached a five-year high. This story has some teeth to it.

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

The two-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).


Check out that stock rise since Nov of last year.  We're looking at a stock that went from ~$24 to now ~$40 or a ~70% in less than a year.  And just to be clear, this is a $26 billion firm, so this is serious money. The stock price today has eclipsed a five-year high, so whatever management has been doing, from the outside looking in, it looks pretty damn good... of course that's from the outside looking in (which has its limitations).

But this is also a volatility story, so let's turn to the one-year IV30™ chart in isolation, below.


We can see the implied has now reached an annual high, but we can also see that in general the implied has been rising with the rising stock price which is "not normal," but is revealing.  I'd say while ADM has grown $10B+ in market capitalization, the option market doesn't quite reflect equilibrium... in fact, it reflects quite the opposite, which is growing risk.

The earnings report due out in a few days could be critical in determining if ADM's rise becomes a comfortable new valuation for the firm (that would be seen if the stock price remains steady or increases off of the release) or if the lack of equilibrium reflected by the option market reveals itself to be true in an abrupt downward stock move. We shall see...

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



Across the top we can see the monthly vols are priced to 34.59% in Nov and 28.12% in Dec.  That vol diff is due to earnings.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


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 disclaims 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.

Finisar (FNSR) - Gotcha! Volatility Spikes Up as Stock Dips; Has the Volatility Trend Been Broken?

FNSR is trading $24.32, down 5.9% with IV30™ up 15.3%. The LIVEVOL® Pro Summary is below.



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Finisar Corporation develops and provides fiber optic subsystems and network performance test systems which enable data communications over local area networks, or LANs, and storage area networks, or SANs. The Company is focused on providing optical subsystems for networking and storage equipment manufacturers that develop and market systems based on Gigabit Ethernet and Fiber Channel protocols.

I last wrote about FNSR on 9-23-2013, noting that the volatility had gotten quite depressed to the point where it had breached an annual low with an IV30™ of 36.88%. You can read that post by clicking on the title, below.

9-23-2013: Finisar (FNSR) - Volatility Breaches Multi-year Lows as Stock Trades at Multi-year Highs


Today I found FNSR using the real-time custom scan that hunts… you guessed it… for volatility 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 two-year FNSR 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 beautiful price appreciation over the last year (ish) from an annual low of $10.95 to now ~140% higher. Wow… We can see to the far right of the stock chart that FNSR hit a multi-year high just a few days ago, but has fallen off since then, with a rather abrupt 6% drop today. I do note that the stock traded as low as $22.83 today, so it has rebounded substantially off of the day lows.

But this is a volatility note, so let’s turn to the two-year IV30™ chart in isolation, below.



I note three phenomena here:
(1) As I have shown with that yellow line, the IV30™ has systematically been dropping for this firm over the last two-years. This is a time period when the stock has been rising (in general).
(2) The peak volatility into earnings (see the green circles and note that the blue “E” icons represent earnings dates) has been trending lower as well. The move hasn’t been monotonic, but it is noteworthy, with the first earnings in this chart showing an IV30™ of 99.73% and the last earnings showing an IV30™ of 58.58%.
(3) Check out the vol pop today (the far right of the chart). FNSR had been at multi-year lows in the implied until the last few days. The stock has dropped and the vol has risen.

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



Across the top we can see the monthly vols are priced to 45.59%, 51.58% and 47.16% for Nov, Dec and Jan’14, respectively. Dec expiry has an earnings event embedded in it. I would watch that level – the question is whether that volatility will end the trend of lower peaks of IV30™ into earnings (as I suspect it may well) or if it will continue the trend. If it continues the trend and ends up in the low 50% range (or lower), that would be an interesting one to watch for potentially under priced earnings volatility.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


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 disclaims 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.

Safeway (SWY) - Stock Pops to 5-year high on Takeover News; Implied Volatility Rockets Up 40%

SWY is trading $35.79, up 8.8% with IV30™ spiking up 42.0%. The LIVEVOL® Pro Summary is below.



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Safeway Inc. (Safeway) is a food and drug retailer in North America. As of December 29, 2012, the Company had 1,641 stores. The Company’s United States retail operations are located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. SWY is the top one on th list, and it has a stock story attached to it as well.

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 HTZ 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 price appreciation not just over the last two-years but over the last two-months. Even over the last year, this stock has risen from ~$16 to now over $35, so more than a 100% rise in an $8 billion market cap company. The high reached today is not just a two-year high, but more than a five-year high, dating well back into 2008.

So what's going on today?... It's buyout rumor time... here is a quick news snippet:

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Safeway Inc. shares jumped Wednesday on reports that several firms are considering a buyout of the supermarket chain.

THE SPARK: Reuters reported Tuesday that a handful of buyout firms, including private equity firm Cerberus Capital Management LP, are exploring a full or partial buyout of Safeway. The report, citing unnamed sources familiar with the matter, said it could potentially shape up to be one of the largest leveraged buyouts since the financial crisis.

THE BIG PICTURE: Safeway, based in Pleasanton, Calif., declined to comment on the report.

The company, like many mainstream grocers, is facing intense competition from dollar stores and big-box retailers such as Target Corp. and Wal-Mart Stores Inc., all of which increased their emphasis on food amid the recession.

Source: AP via Yahoo! Finance; Safeway shares jump on buyout report
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not only is the stock popping on the news, but so is the volatility. Let's turn to a two-year IV30™ chart in isolation, below.



I have circled the IV30™ pop today in yellow. before thisnews, the implied in SWY was actually quite low as the stock price was making its upward march. The news of a potential buyout has changed all of that as the IV30™ has spiked up more than 40%.

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



Across the top we can see the monthly vols are priced to 37.95% for Nov and 37.88% for Dec.  It's fascinating that the vol pop is essentially equal in the front two-months.  the option market reflects elevated risk from this news for an extended period of time, rather than a short-term event.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


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 disclaims 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.

Angie's List (ANGI) Vol Hits All-time Highs; Earnings May Signal Solvency Issues; Will the Company Make it?

ANGI is trading $15.38, up 0.13% with IV30™ down 0.9%. The LIVEVOL® Pro Summary is below.



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Angie’s List, Inc. (Angie’s List) operates a consumer-driven service for members to research, hire, rate and review local professionals for critical needs, such as home, health care and automotive services.

I found this stock using a real-time custom scan. This one hunts for elevated vols. ANGI has earnings due out tomorrow AMC, so now is the time to examine the volatility, and of course, it should be elevated into the earnings event.

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

The two-year ANGI 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 number of stock gaps over the last year (highlighted in yellow). Many of those stock moves are due to earnings releases (the blue “E” icon represents earnings). But, the most recent move down from $23.89 (9-27-2013) to today’s price of ~$15 was not explicitly due to an earnings release yet it has seen the stock lose nearly 50% of its value in less than a month. Yikes…

So what was the news?... It was actually quite big – ANGI has cut their membership prices by 75% (from $40 per year to $10 per year). The stock market didn’t like that… And now we have earnings due out which means more information, more speak from top management and more questions from top tier analysts. Let’s turn to the ~all-time IV30™ chart for ANGI in isolation, below,



We can see the IV30™ is essentially at an all-time high. We can also see remarkable spike up from the bad news combined with the approaching earnings release. The IV30™ climbed from 57.65% (9-27-2013) to now just under 100%. So as the stock has fallen by ~40%, the IV30™ has risen by ~80%. And earnings, they are here after market close (AMC) on Wednesday 10-23-2013…

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



Across the top we can see the monthly vols are priced to 101.95% for Nov and 81.59% for Dec. That vol diff is due to the earnings release. A fair question is, considering the firm hasn’t turned an annual profit yet, could the earnings news also be a test of solvency for the firm as a going concern? I guess we’ll see…

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:
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Google (GOOG) - Are We in a Bubble? Earnings Good, but Stock Hyper Reacts to Upside

GOOG is trading $1008.89, up 13.51% with IV30™ down 13.7%. The LIVEVOL® Pro Summary is below.



Google Inc. (Google) is a global technology company. The Company’s business is primarily focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products.

So the story today surrounding GOOG is simple, an earnings blowout. The question is, do these numbers really mean GOOG is worth 13.5% more today than yesterday? If yes, then OK... very nice. But if not, this could be a sign of an overall market bubble forming.

Let’s start with the news (results) from earnings:
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EPS: $10.74 Actual vs. $10.34 Estimated (a 3.87% out performance)
Revenue: $11.92 billion Actual vs. $11.7 billion Estimated (a 1.88% out performance)
26% annual rise in in paid clicks
8% annual drop in average price per click
Source: Everywhere, but in particular The Motley Fool and AP.
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Let’s turn to the two-year GOOG Charts Tab, below. The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see a two year stock rise from $580.70 to now over $1000 or nearly a 75% rise. Who says mega caps can’t go up huge?...

On the volatility side I actually don’t see anything remarkable. The IV30™ seems well behaved. Let’s look at an isolated IV30™ chart over the last two-years, below.



The blue “E” icons represent earnings dates and I do note how the peaks of IV30™ into earnings continue to get lower. Here’s what has my attention… A mega cap just went up $40 billion in market capitalization in one day on very nice earnings (but not blowout earnings by any stretch of the imagination). Take that with falling volatility (which means lower future looking risk) and I feel like we may be getting to, dare I say, a bubble? I mean huge stock moves up and lower future looking risk on kinda so-so out performance earnings news… in a mega-cap…

Finally, let’s turn to the Options Tab.


Across the top we can see that Nov vol is priced to 19.01% while Dec is priced to 19.56%. But who cares, GOOG is worth $340 billion.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

Tweet


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 disclaims 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.

The Men's Wearhouse (MW) - Takeover Bid and Option Market Reaction Say One Thing: This Stock is Gonna Move.

MW is trading $46.19, down 0.05% with IV30™ up 25.7%. The LIVEVOL® Pro Summary is below.




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The Men’s Wearhouse, Inc. is a specialty retailer of men’s suits and a provider of tuxedo rental product in the United States and Canada. At January 28, 2012, the Company operated 1,166 retail stores, with 1,049 stores in the United States and 117 stores in Canada.

The news behind MW is simple, a takeover bid was made by Jos. A. Bank Clothiers in the second week of October and that bid has been rejected by MW. Here's a quick re-cap with news snippets:

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10-9-213
Jos. A. Bank Clothiers disclosed Wednesday that it made the unsolicited proposal in September to buy Men's Wearhouse for $48 per share in cash, a 42 percent premium at the time. In rejecting the deal, Men's Wearhouse said it wasn't in the best interest of its shareholders or the company.

But the leaders at Men's Wearhouse rejected the offer about two hours after it was publicly disclosed, calling it "opportunistic" and "inadequate."

It later announced it would adopt a shareholder rights plan, also known as a poison pill, designed to thwart anyone who buys a big chunk of its stock without board approval: 10 percent for a person or group, or 15 percent for a passive institutional investor.

Source: AP via Yahoo! Finance Jos. A. Bank offers $2.3B for Men's Wearhouse, written by Anne d'Innocenzio and Tom Murphy, AP Business Writers
---

The interesting thing about MW is that it just showed up on my custom scan that searches for single day IV30™ gainers.


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

Something is afoot. Let's turn to the two-year MW 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, I've highlighted the move off of the takeover bid, when the stock spiked from $35.24 to $45.03 in one day.  The almost instantaneous rejection by MW (just hours after the bid) kept the stock price below the $48 takeover bid (yes, I know there are other reasons it would trade below $48, but this is the big one).  The stock price has sort of meandered higher to just over $46 as of this writing, but it's the volatility that is interesting.

Let's turn to the two-year IV30™ chart in isolation, below.


Totally separate from this takeover news, just check out how hypnotic that earnings volatility is (the blue "E" icons represent earnings dates).  Anyway, onto the story at hand...

We can see that the implied actually rocketed higher on news of the takeover, which is in fact a misrepresentation of the facts, the volatility spiked b/c of the negative reaction MW has to the bid.  Normally when a takeover bid is made, volatility collapses, but in this case the quick rejection from MW and adoption of a sort of takeover defense made the stock price ore risky, not less risky.  I then note that after IV30™ peaked at ~ 44%, it fell again... until today. The implied has popped more than 25% today and that means the option market reflects higher stock risk in the near-term.

This whole thing gets even more interesting when we look at the Options Tab, below.


Noe how the Nov 50 calls are worth ~ $0.80 (mid-market), and the Nov 41 puts are worth ~$.73.  Keep in mind this was a $35 stock pre-takeover bid.  So the questions that remain to be answered are:

(1) Will a higher bid come into play?  The option market reflects a non-trivial chance of this occurring (see the Nov 50 calls).

(2) Will the bid go away?  the option market also reflects a non-trivial chance of this occurring (see the Nov 41 puts).

3) Will either of those things happen in the near-term (next 30 calendar days)? Yet again, the option market reflects a non-trivial chance of this occurring (see the IV30™ rise today).

In English, buckle-up, MW doesn't look like it will be a $46 stock for very long.  Whether it's higher or lower I dunno, but the option market reflects it will be one of those rather than neither.

This is trade analysis, not a recommendation.

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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 disclaims 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.

Ubiquiti Networks (UBNT) - "[The] Most Important Announcement of the Year." Now This is a Story...

UBNT is trading $39.47, up 4.4% with IV30™ popping 14.1%. The LIVEVOL® Pro Summary is below.



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Ubiquiti Networks, Inc. (Ubiquiti) is a communications technology Company. designs, manufactures and sells broadband wireless solutions worldwide. The Company offers a portfolio of wireless networking products and solutions, including systems, high performance radios, antennas and management tools, designed for wireless networking and other applications in the unlicensed radio frequency (RF) spectrum.

This is a truly fascinating story that I just now picked up on (my bad). The stock has been rocketing and implied volatility has been rising with the price, but it seems to surround this very auspicious announcement which I picked up from theflyonthewall:

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Ubiquiti Networks teases 'most important announcement of year'
Ubiquiti Networks plans a vendor presentation at the WISPAPALOOZA conference, scheduled for tomorrow night, where the company will make its "most important announcement of the year," according to the agenda for the event. The broadband conference is hosted by WISPA, the wireless Internet service provider association.

Source: theflyonthewall via Yahoo! Finance
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Really... That sounds like fun... The IV30™ has been ripping of late as has the stock, so let's look at a 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 price appreciation from ~$11 to now ~ $40 in less than a year. That's ~260% rise in a firm that now has a market cap of ~$3.5 billion. So, it's not a tiny no-name firm. But there's a fascinating happening with the volatility as well.

First, let's look at the bottom portion of the chart above. Note how the red curve has been on a tear, rising from ~50% on 9-10-2013 to now over 100%. In English, the option market reflects a double in the share price risk for UBNT in the next 30-days.

But there's more weird stuff with the vol. Let's look at the Skew Tab, below.




We can see that Oct vol (the red curve) is well depressed to Nov vol (the yellow curve). But when I read the news from theflyonthewall, that doesn't really make sense to me. I'll reprise that relevant part:

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UbiquitiNetworks plans a vendor presentation at the WISPAPALOOZA conference, scheduled for tomorrow night
---

So that would be Thursday night, and Oct expiry is Friday night. So there should be a day of trading after the announcement. Now, I know that UBNT has an earnings release on 11-7-2013 (AMC), but who cares?... If this is the "most important announcement of the year," earnings in Nov are completely trumped by the news coming out on Thursday night... right? Or not?...

Anyway, we gotta put this one on a watchlist and look at that vol diff between Oct and Nov. What an interesting volatility story that will play out its final act in two days.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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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 disclaims 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.

Netflix (NFLX) - How a New Industry Giant Shows 'Cheap' (?) Earnings Volatility into Earnings; Did You Know This?

NFLX is trading $324.47, up small with IV30™ down 1.4%. The LIVEVOL® Pro Summary is below.



Netflix, Inc. (Netflix), incorporated on August 29, 1997, is an Internet subscription service streaming television shows and movies. The Company’s subscribers can watch unlimited television shows and movies streamed over the Internet to their televisions, computers and mobile devices, and in the United States, subscribers can also receive digital versatile discs (DVDs) delivered to their homes.

This is an earnings volatility note on NFLX, an remarkable phenomenon that I see right now. I have written fairly extensively on NFLX, and how they have changed the entertainment industry and turned it on its ear. While this article focuses on the earnings release on 10-21-2013 AMC, I have included the prior posts below. Simply click on the title to read a specific post.

9-18-2013: Netflix (NFLX) - The New Giant -- Stock Near All-time High but Volatility Collapses to Multi-year Low

9-10-2013: Netflix (NFLX) - Is this the Most Powerful Firm in Entertainment? Some Things I Bet You Didn't Know... But Want to.

4-25-2013: Netflix (NFLX) - Vol Nears Multi-Year Lows as Stock Explodes; Hollywood Take Note -- Another Shot Across Major Distributor’s Bows

Here is a quick review from the most recent posts, which is highly relevant to this up coming earnings release.

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---
So why is this happening to NFLX? Well, a lot of reasons, but one of the biggest is pretty simple:

NFLX now decides which TV shows are hits. Yeah, that's right. For example, the AMC original show Breaking Bad, the highest rated TV show ever by meta critics, was at a point after season 4 where its record viewership for any one episode was ~1.5 million people. That's actually very low. CBS has nights where shows hit 20 million. The Walking Dead (also on AMC) hit over 12 million. So, Breaking Bad, though a bonanza on the critical side, was actually kind of a poor performer in terms of viewership. Then NFLX happened.

An agreement was struck to put all of the "Breaking Bad" old seasons on NFLX for free (everything is free on NFLX with the monthly subscription). The first episode of season 5 aired to 3 million viewers (so a 100% increase). Then, the first episode of season 5 part II aired to 6 million viewers (NB: My numbers may be off wrt which season the bump(s) happened, do some fact checking before quoting me). OK, OK, is this really b/c of NFLX? Well, here's a direct quote from the show's creator, Vince Gilligan:
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"I am grateful as hell for binge-watching. I am grateful that AMC and Sony took a gamble on us in the first place to put us on the air. But I'm just as grateful for an entirely different company that I have no stake in whatsoever: Netflix. I don't think you'd be sitting here interviewing me if it weren't for Netflix. In its third season, Breaking Bad got this amazing nitrous-oxide boost of energy and general public awareness because of Netflix."
---

Why does this matter? How about this... Instead of NFLX paying for content, the content providers may pay NFLX to air their shows. That's incredible.

Add to the fact that NFLX now has critically acclaimed original content -- that's content available ONLY on NFLX ("House of Cards" and "Orange is the New Black" are two of them) and what we're slowly finding here is that NFLX may become the most powerful content distributor for TV (the profitable part of the entertainment business) on the planet.

Don't laugh or roll eyes, it's happening right now. FOX is tying the same game as AMC did with "Breaking Bad" with their sitcom "The New Girl." And you know what?... it's working again...

Now NFLX does have competitors, namely AMZN (I know they're not the first name to come up from entertainment industry folks, but the entertainment industry is wrong -- AMZN is the risk for NFLX). Another risk is the content creators using their own channels (no pun intended)... but that doesn't seem to work so far (and yeah I know what Hulu is and who created it).

Here's more news, from CNBC a day after I posted this article:
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Groundbreaking news that Virgin Media is bringing Netflix directly to its set-top box in the U.K. in effect elevates Netflix to the status of a new cable network-a benefit for a cable company and beyond being an upstart threat to cable.

The deal, which makes Netflix available on cable set-top boxes for the first time, was announced Monday. On Tuesday, Netflix shares hit a new all-time high, trading 6.5 percent higher to $313, flying past its record $304 on July 13, 2011.

The stock's nearly 220 percent gains this year have been driven largely by the success of its original content deals, which have helped add new subscribers, giving Wall Street confidence that exclusive originals will continue to deliver.

(More from Julia Boorstin: Is Apple's iRadio a Pandora killer? )

Virgin's parent, Liberty Global (LBTYA), gained just under a percentage point on Tuesday's news.

Virgin Media's partnership with Netflix is the first time a cable operator is bringing the streaming service directly to the set-top box. Other cable operators-like Comcast (CMCSA)-allow users to access Netflix through Internet-connected set-top boxes-but this is the first time a cable channel has directly made a deal with Netflix to treat its content just like that provided by cable channels like HBO (owned by Time Warner (TWX)) and Showtime (owned by CBS (CBS)). (Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.)

Virgin will integrate Netflix with its television content so it's easy to seamlessly browse and search across both TV and streaming content.

Source: CNBC via Yahoo! Finance Why Netflix is at a new all-time high, written by Julia Boorstin.
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---

OK, so all of this has seen NFLX stock go from a low of $57.40 in the last 52 weeks to now trading at ~$325. And this is a $19 billion company, not a tiny $50MM market cap that has moved 600%.

Let's turn to the two-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 that breath taking rise.  A complete reversal of fortune of a firm on the brink of a solvency and relevancy catastrophe, to a firm that may be worth $100 B in a few years.

OK, but this is a volatility note, so let's turn to an isolated two-year IV30™ chart below.


NFLX has earnings due out in less than a week.  What I have done is highlighted the IV30™ over the last eight earnings cycles (the blue "E" icon represents an earnings date).  Two things to note:

(1) We can see a steady decline in the earnings volatility peaks.. OK, semi-interesting.

(2) Most interesting (to me) is how low the implied is right now relative to the other peaks. I have drawn that horizontal yellow line from the current volatility level back two years.  It's shocking (to me) how depressed the earnings vol is right now relative to the last eight quarters given the remarkable (and surprising) news that has come out of this firm's earnings releases in the past.

Bottom line, this feels like way too low volatility, especially considering that earnings are due out on 10-21-2013, and Nov expiry is Nov 15th.  So, in English, the owning the IV30™ into earnings gets both an earnings release and another four weeks of "regular" stock movement.

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



Across the top we can see Nov vol is priced to 64.70%.  The lowest volatility into the last eight earnings cycles was 74% and the second lowest was 77%.  The highest volatility into earnings over the last eight quarters was 134%, and second highest was 90.83%.

Right now the ATM straddle in Nov costs ~$50, so it dollars, it ain't cheap.  The question is, do you think NFLX will move by more than +/- 50 at any point between now and Nov 15?  or, do you thin volatility will rise enough to make that straddle worth more than $50 at any point between ow and Nov 15?  Fair question... Or is it 'fair?'

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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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 disclaims 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.

Whirlpool (WHR) - Stock Explodes to 30-year Highs, Then Dips; Volatility Breaches New High But Earnings is Not the Driver

WHR is trading $131.92, down 6.0% with IV30™ up 10.8%. The LIVEVOL® Pro Summary is below.



Whirlpool Corporation (Whirlpool) is a manufacturer and marketer of home appliances. Whirlpool operates in four segments: North America, Latin America, EMEA (Europe, Middle East and Africa) and Asia. Whirlpool manufactures and markets a line of home appliances and related products.

I found this stock using a real-time custom scan. This one hunts for elevated vols. But, this is also a stock note, as we’ve seen the stock hit an all-time (over a decade) high and recently dip hard off of that high. Further, the option market reflects greater risk in the coming week than it does from earnings (due out 10-22-2013 BMO). Hmm… Feels like a ticking clock that runs out on Friday.

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

The two-year WHR 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 meteoric rise from $54.98 two years ago to now over $130… The stock actually clipped the $150 level on 9-20-2013, which was an all-time high… and by all-time high, I mean, ALL-TIME HIGH. Check out this stock chart since WHR went public.


Provided by Yahoo! Finance

This stock chart goes back to 1983, so ~30 years. But from the two-year chart (above), we can also see the recent dip in stock price. The news today comes from a couple of boutique research shops which posted some warnings about sales growth for WHR and the stock is reacting to the downside fairly abruptly.

But, this is a volatility note, so let’s turn to the two-year IV30™ chart in isolation.



There are two phenomena that I want to draw our attention to:
(1) The IV30™ is at an annual high and by quite a large amount. That yellow line I’ve drawn in goes back one year, and we can see pretty clearly how elevated the vol is relative to any other level in the last 52 weeks.

(2) I also note the WHR has seen much higher volatility levels in the last two-years, reaching as high as 57%.

So what? Well, when you have a stock hitting an all-time 30 year high, then dipping off of some research notes and the implied hits an annual high, you do have to look further back and see, yes the volatility is elevated to the last year, but not for the full length of the stock rally. This stock could easily see IV30™ jump over the 60% mark if more research sales growth notes (or company press releases) pile on the idea of lower than expected revenue (and net Income). At this point, I would say, be careful, the option market reflects elevated risk but it could go higher and the stock has gone up a lot over the last two-years – a retracement isn’t an impossibility (nor is it a forgone conclusion).

Let’s turn to the Skew Tab.



I note the parabolic skew in the very short-term (this week), reflecting both upside and downside risk. The Nov options however do not show this parabolic shape, rather they show a more normal one-sided (down side) skew.

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



Across the top we can see the monthly vols are priced to 46.35% for Oct and 43.29% for Nov. Here’s the oddity, and it’s big, Nov expiry has the earnings release but shows lower vol than Oct. In English, the option market reflects greater risk in the coming week than it does from earnings. Hmm…

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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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 disclaims 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.