Largest Gainers and Losers

Provided by Livevol


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.

Thank you

And so on this day of Thanks, I pay it forward to you for making my life wonderful.

815,000 readers in four years on the blog. To each and everyone since my debut --
I humbly declare, that I write not for me, but for you.

So the sun rises once more --
With scattered strength and shattered roar.

Lightly punishing blows --
And humility in groves.

Leave sounds of pounding piano opening the hidden door.

Another day of cannot and will not to follow --
Another day of unimaginable pain to swallow.

Pouring rain and whet appetites fall --
Satisfied in whole, empty in all.

Let us feel that which we cannot touch
     Let us touch that which we cannot see;
     Let us see that which we cannot hear.
And let us hear the music as such.

Let us walk in the wonder and find quiet on the other side;
     Let us shake with fury; let us tremble in love;
And let us conquer the great divide.

Let us raise our hands to the sky --
Let us give everything and defy.

Let us not see anyone else so that we may touch the rest --
Let us walk over the step and pass this test.

Let us walk in Marc’s blue suede shoes --
Let us walk in the land of the Delta Blues.

Let Reverend Green welcome our badly worn hand --
Let fury and rage fall quiet in this our last stand.

Let us rise without fear and pain --
Let us lift all else in this passion’s reign.

Let us believe; not one time nor the second --
Let us believe not for want but to reckon.

Let us always find the strength to move --
Let us not search for answers to life prove.

Let us fly higher than death --
Let us fight with every last breath.

Let us make today one --
and nine hundred ninety nine thousand nine hundred and ninety nine will be done.

Let us win; and let us never forget that it is inside of us, because we are inside of it.

So the sun rises once more; with scattered strength and shattered roar.
     Lightly punishing blows and humility in groves;
Leave sounds of pounding piano opening the hidden door.

Thank you.

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Netflix (NFLX) - This Newly Minted Giant Has a Big Secret; But It's in the Option Market...

NFLX closed Tuesday trading at $355.20, up 1.4% small with IV30™ down another 3.3%. The Symbol Summary is included below.


Provided by Livevol

Netflix, Inc. (Netflix) 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.

I have written extensively, perhaps to the point of compulsion about NFLX.  You can read any of the prior posts below by clicking on the titles.

This is a volatility note.  The first time I note low volatility in NFLX it was trading $216 at 46% vol.  Today it is $355 at 35% vol.

10-15-2013: Netflix (NFLX) - How a New Industry Giant Shows 'Cheap' (?) Volatility into Earnings; Did You Know This?

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 relevant to this note which surrounds substantially depressed volatility in the option market.

---
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:
---
"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:
---
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.
---

On 10-15-2013 I noted that the volatility into earnings for NFLX was quite low.  The stock did in fact go from ~$355 to~$322 in a single day (while in that same day hitting $389, then dropping $65 intra-day).  But since then, well, we're back to $355.

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).

Provided by Livevol

So the stock is up huge,the importance of this firm in the industry is up huger and the valuation proves it.  We're talking about a $21 billion firm now.

But here's the the thing, and there's no way around it.  The higher NFLX stock goes and the more power it has in the industry, the greater the potential fall.  I am a huge fan of NFLX and their management team's ability to resurrect a firm that many thought was dead (or on its death bed, at least) to an incredibly powerful "new" firm. But, at these valuations, there is risk.  Also, there is substantial risk of higher valuations.  While $21 billion is a big firm, why can't NFLX be worth $100 billion?  So, I say, there is risk to both sides in this stock, yet the option market tells me I am wrong... and here's why...

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

Provided by Livevol

What we see, quite plainly, is that NFLX volatility has dropped to a multi-year low.  I have drawn that yellow horizontal line back two-years to illustrate the level of the current implied.  So a few mitigating factors:

1. The market wants to go up right now, it just does... So volatility (VIX) is low.
2. We're heading into Thanksgiving; a sleepy time not just for our grumbling tummies but also for the market at large.

But here's the fact that takes that mitigating factor stuff and throws it out the window.  Jan' 14 volatility is almost equally as depressed.  Yeah... it's true...

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

Provided by Livevol

So we know Dec vol is low per the IV30™ -- it's priced to 34.25% per the top of the Options Tab (the green numbers).  But... Jan'14 volatility is priced to 36.49%, and that ain't much higher.  Is tat volatility fairly priced for NFLX? I dunno... But it ain't high...right?...

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.

JOSB, MW - Takeover Tango; But Has the Option Market Missed the Risk?

JOSB is trading $56.25, up 11.2% with IV30™ down 32.2%. The Symbol Summary is included below.


Provided by Livevol

MW is trading up 8.1% with IV30™ up 3.3%.  That Symbol Summary is included below.


Provided by Livevol

Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, manufacturer, retailer and direct marketer (through stores, catalog call center and Internet) of men’s tailored and casual clothing and accessories and is a retailer of tuxedo rental products.

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.

So this is a fascinating story of a takeover bid from a company that has a takeover bid on it from the same company.  JOSB bid on MW for a takeover and MW has just bid on JOSB for a takeover.  Yup, it does happen...

First, let's turn to the news, then the stock price and volatility action:

---
(Reuters) - Men's Wearhouse Inc (MW) struck back at Jos. A. Bank Clothiers Inc (JOSB) with a $1.5 billion bid to acquire the suit and tuxedo retailer, only weeks after rejecting a takeover offer from its smaller rival.

Men's Wearhouse, under pressure from activist shareholders to merge, offered $55 per share in cash for Jos. A. Bank, a offer that values the smaller retailer's stock at a 9 percent premium to its close on Monday.

Jos. A. Bank shares rose as much as 12 percent on Tuesday to a two-and-a-half year high of $56.91, topping the offer in a sign investors might be expecting a better bid. Men's Wearhouse shares rose as much as 10 percent to a year-high.

"For the shareholders of Men's Warehouse and for Jos. A. Bank, Christmas has come early. They will see huge benefits to the merging of these two companies," said Jerry Reisman, an M&A expert at law firm Reisman Peirez Reisman and Capobianco LLP.

The combined company would have 1,700 stores that rent tuxedos and sell suits, a scale that in the past has raised antitrust questions about a merger.

The retaliatory offer from Men's Wearhouse, which the company said implies an enterprise value of about $1.2 billion for Jos. A. Bank, follows pressure from its largest shareholder, New York-based hedge fund Eminence Capital LLC.

Eminence, along with other hedge funds that hold about 30 percent of Men's Wearhouse shares, had tried to persuade other investors to pressure the company into accepting the takeover offer from Jos. A. Bank.

Source: Reuters via Yahoo! Finance; Men's Wearhouse turns tables with bid for Jos. A. Bank, written by Aditi Shrivastava.
---

Well there you have it.  There has been substantial price action in both names.  Let's turn to the two-year Charts Tab where the prices are measured as returns over the time period.  The yellow line is MW and the red line is JOSB.

Provided by Livevol

A number of points to note:

1. MW is up nearly 70% in two years whereas JOSB just by today's pop finally turned positive.
2. That straight line up in the yellow chart (MW) is due to the JOSB bid on MW.
3. Very interestingly, JOSB stock also rose with the news of its bid on MW -- which is pretty rare.
4. JOSB gapped up on the MW bid news.
5. MW oddly has also risen abruptly today on news of its takeover bid for JOSB.

In English, however we slice this, the equity market loves the idea of MW and JOSB merging -- regardless of which firm is the initiator.

But there is a volatility story here, and this is compelling both on an overall vol level and at the skew level.  Let's turn to the two-year IV30™ chart for JOSB, below.

Provided by Livevol

We can see the massive drop in IV30™ for JOSB today on news of MW trying its part at a takeover.  The implied vol for JOSB is now sitting in the 19th percentile (annual), or in English, it's really low.  A vol dip on takeover news is common, it generally reflects that the takeover is likely to happen and that the firm being acquired has much less risk in its equity price after the takeover news.  But... do we feel that way about JOSB?  I dunno...

Interestingly, the option market also reflects no change at all in the upside potential for JOSB.  Let's turn to the Skew Tab for JOSB yesterday (11-25-2013) and then today (11-26-2013).

Provided by Livevol


Provided by Livevol

The point here is that the skew yesterday did not reflect upside risk (i.e. upside potential) relative to downside risk.  Or said differently, the option market apparently mis-priced the upside potential in JOSB.  Could the option market be mis-pricing the volatility in general for JOSB?  Does it feel like it should be in the 19th percentile on an annual level?  I can make an argument for both, but both means uncertainty, and uncertainty = volatility.

To read more about skew, what is and why it exists you can click the title below:

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

Finally, the Options Tab is included below.

Provided by Livevol

Across the top we can see the monthly for JOSB are now priced to 27.78% for Dec (down 12.9 vol points) and 25.22% for Jan (down 11.9 vol points).


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.

UniPixel (UNXL) - Stock Drops, Volatility Explodes on Federal Subpoenas

UNXL is trading $11.86, down 15.5% with IV30™ exploding up 47.5%. The Symbol Summary is included below.


Provided by Livevol

Uni-Pixel, Inc. (Uni-Pixel) is a production-stage company delivering its Performance Engineered Film (PEF) to the display, touch screen and flexible electronics markets. The Company has developed thin film high volume roll to roll or continuous flow manufacturing process. The Company sells its films as sub-components for use in liquid crystal display (LCD) as a back light film and active film sub-component.

So this is obviously both a stock and volatility note.  Let's jump into the news, then the analysis.

---
WASHINGTON (AP) -- Shares of Uni-Pixel plunged in after-hours trading Friday after the electronic film company disclosed that federal financial regulators had issued subpoenas related to its InTouch Sensors technology.

Uni-Pixel said in a regulatory filing Friday that on Nov. 19, it learned that the Fort Worth, Texas office of the Securities and Exchange Commission was probing agreements related to the touch-screen technology. The company said it "intends to cooperate fully with the SEC regarding this non-public, fact-finding inquiry."

The Woodlands, Texas-based Uni-Pixel makes films for touch screens, electronics and other products.
Its stock had struck a 7-year high in April after the company announced a manufacturing and supply deal with Eastman Kodak Co. The deal called for the companies to open a new manufacturing plant within Kodak's corporate campus in Rochester, N.Y. , to make touch-screen sensors.

Source: AP via Yahoo! Finance; Uni-Pixel shares slide on notice of SEC subpoena.
---

The reaction is in part so abrupt because of the stock rise and the flurry of interest in UNXL based on the touchscreen technology. Let's turn to the Charts Tab (two-years) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

On the stock side we can see a remarkable story.

1. From Nov 2011 to Oct 2012, the stock was essentially unchanged.
2. From Oct 2012 to Apr 2013, the stock rose from $6 to a high of over $41.  yeah, almost a 7-fold move.
3. From Apr 2013 to the present, the stock has dropped from $41 to now below $12.

Let's just say that market sentiment has turned a bit sour for UNXL valuation.  And by sour I mean, spit out of your mouth and cover it with dirt.  Oddly, if we just look at the two-year change, we do see a stock price up 100%.

Let's turn to the isolated IV30™ chart over one-year, below.

Provided by Livevol

What I note most remarkably is that UNXL implied volatility was at an annual low just a few days ago (see that low level reached on the far right hand side of the chart).  The news today has exploded the volatility imploded the stock, meaning both that it was a surprise (see stock) and that the news has added risk to the firm's future outlook (the rise in vol).

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

Provided by Livevol

We can see Dec vol is priced to 111.29% up 36.6 volatility points while Jan'14 vol is priced to 101.51% up 22.1 volatility points.  I do note that UNXL's IV30™ high this year was 165.42%, so yeah, the vol can go higher...

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.

Lumber Liquidators (LL) - The Finger Print of Fraud; Stock Gaps Down on Fraud Accusations; The "Expense Recognition" Game. Is Volatility Mis-priced?

LL closed Friday trading at $101.81, tumbling down 11.7% with IV30™ popping 26.8%. The Symbol Summary is included below.


Provided by Livevol

Lumber Liquidators Holdings, Inc. (Lumber Liquidators) is retailer of hardwood flooring, and hardwood flooring enhancements and accessories. The Company offers an assortment of wood flooring, which includes prefinished domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork and laminates, as well as resilient flooring.


I found this stock looking for the day's largest losers, and as is usually the case, there's quite a story behind this drop.  The end results is both a stock and volatility story surrounding some scathing remarks made by a short-seller implicating management in multiple types of fraud.  Oh, and by the way, the stock was up more than 650% in two-years before this news.

Let's start with the the two-year BLOX 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).  Then get into the accusations and the volatility.

Provided by Livevol

On the stock side we can see a monumental appreciation following a frighteningly calm ascent.  The stock was trading at $15.29 two-years ago, and opened Friday at $115.36.  That's a 650% gain in two years on a surprisingly level headed upward trend that has turned a $420 million market cap company into one that was worth nearly $3.2 billion before Friday's drop.

Here's the news, and it is ugly:

---
Shares of Lumber Liquidators  were getting taken to the woodshed, falling 12% after Whitney Tilson, head of the Kase Capital Management hedge fund, announced a short position in the high-flying wood-flooring specialist. At an investor conference, Tilson noted a government investigation into potentially illegal timber imports by Lumber Liquidators, and suggested the company's gross margins, which have improved to better than 40% lately, were too good to be true. The hedge fund manager also cited a report from the non-profit Environmental Investigative Agency that said Lumber Liquidators' purchases "have fueled rampant illegal logging in Eastern Russia." Shares of the flooring retailer had more than doubled this year before today's drop, riding the broader housing recovery.

Source: The Motley Fool via Yahoo! Finance; Dow Hits Another Record, but Lumber Liquidators and Fresh Market Tumble, written by Jeremy Bowman.
---

I have added the italics and bold font to draw out the real news.

1. Kase Capital is shorting LL stock.
2. Whitney Tilson pointed out a government investigation into potentially illegal operations.
3. The gross margins for LL could be falsified.
4. Other potential shenanigans in Russia.

The accounting fraud game of expense recognition is often times seen in gross margins.  It can be done in several ways, but two of the most common are:

1. Blatant falsification of costs (under reporting).
2. Knowingly mis-classifying costs from COGS into SG&A and thus artificially boosting gross margins (operating revenue - COGS).

Either of these games is a major no-no, number one being worse than number two, but both, if true and discovered, likely result in an SEC Enforcement Action of Accounting Fraud.

Now remember, these are claims from a short-seller, not claims or actions from the regulators.  But, if there is an existing investigation, that means... there is a volatility story to be told.  So let's tell it.

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

Provided by Livevol

We can see the spike from Friday's news, but still, that red line is kind of "middle-of-the-road" relative to the last two-years.  Here's my question: "If a stock is up 650% in two-years, has been accused openly by a short-seller of Accounting fraud while a government investigation appears to be open regarding shenanigans into operations of the firm and the stock gaps down on a reminder of that news, shouldn't volatility be elevated?"

I'll let you decide, but I can tell you that not only is the IV30™ in the 46th percentile on an annual level (so right about the middle), but the back month (Jan'14 options) show even lower volatility.  Huh?...

Let's turn to the Skew Tab, below.

Provided by Livevol

I use this image simply to show that Jan vol (the yellow curve) is lower than Dec vol (the red curve).  Why does the option market reflect less risk in Jan than Dec when Dec itself is tame if not low for the year?  It appears that the option market reflects that this news will pass relatively soon and relatively quietly.  Hmm...

To read more about skew, what is and why it exists you can click the title below:

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

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

Provided by Livevol

Across the top we can see the monthly vols are priced to 42.02% for Dec and 40.30% for Jan, so the vol reflects lower risk in Jan.  I'd keep an eye on this one  I'm nit sure this was a one and done story.  Not for a stock that was up 650% and has multiple accusations of fraud and a government inquiry into operations.  I believe we would call that, "risk elevating" news.

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.

Infoblox (BLOX) - Volatility Explodes to All-time Highs; Stock Up 200% in a Year but Earnings Reflect Unprecedented Risk

BLOX closed Tuesday trading at $41.95, down 1.9% with IV30™ rising again, this time to multi-year highs. The Symbol Summary is included below.


Provided by Livevol

Infoblox Inc. (Infoblox) is an automated network controller. The Company’s network functions include Internet protocol (IP) address management, device configuration, compliance, network discovery, policy implementation, security and monitoring.

I found this stock using a real-time custom scan. This one hunts for elevated vols.  I note that BLOX has earnings due out on 11-26-2013 AMC, and while this is probably a name you're not familiar with (I wasn't), this is a compelling stock and volatility story set up for earnings.

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 two-year BLOX 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).

Provided by Livevol

On the stock side we can see a rise starting from 11-29-2012 on a rip roaring move off of earnings taking the stock from $13.95 to $18.07 in a single day, or a 30% one-day rise.  Since then, the stock has risen as high as $48.97 and still sits 200% higher at the current level of $41.95.  In that time, the firm has gone from a kinda quiet small cap to a firm now worth nearly $2.2 billion.  Well done management...

But, this is more than a stock story -- much more.  Let's turn to the two year IV30™ chart in isolation, below.

Provided by Livevol

Check out the recent rise.  Yes it's due to earnings, and yes the movement is similar to prior earnings dates (the blue "E" icons represent earnings releases), but the 86.88% level it closed at on Tuesday is way into multi-year (and all-time) high territory.  In fact, the peak prior to this run was 83.30% and that was a single day. 

Since earnings aren't due out for about a week, it's a distinct possibility if not probability that the implied will continue to rise into that event.  90%+ implied is not impossible.  This is turning into a compelling vol story in a stock that has totally transformed itself in terms of valuation.

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

Provided by Livevol

Across the top we can see the monthly vols are priced to 86.88% for Dec and 73.49% for Jan, so the vol reflects the risk in the earnings release.  I'd keep an eye on this one -- both the price and the risk.

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.

Tesla Motors (TSLA) - Stock Collapsing, Volatility Rising, but the Paradigm Has Not Shifted... Yet

TSLA is trading $124.76, down 7.9% with IV30™ up 15.7%. The Symbol Summary is included below.


Provided by Livevol

Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components.

I have written about TSLA extensively, and have included the articles, below.  You can click on a title to read the posts.  I do note that walking into a TSLA dealership and speaking with a salesman (they are shareholders) has been a perfect indicator of earnings well ahead of anything Wall St. has projected.  Read the post from 8-8-2013) below for an actual real-time example.


11-6-2013: Tesla (TSLA) - Earnings Happened; Stock Falls Hard... But Do You Know The Facts About this Company?

Provided by Livevol

8-8-2013: Tesla (TSLA) - Now a $20B Firm Off of Earnings Blow Out; How Wall St. Absolutely Blew It; But I didn't... And I'm Just a Guy...


5-9-2013: Tesla (TSLA) - Earnings Explosion Spectacle Hides Vol Shift -- This is a New Company -- A Paradigm Shift is Complete


5-15-2013: Tesla (TSLA) - May Skew Stays Parabolic; Vol Diff Opens... And Some Stuff You May Not Have Known...


5-29-2013: Tesla (TSLA) - This is a New Company; The Paradigm Shift Continues; Part 3 of 3.



So we have seen a paradigm shift, a stock exploding and now imploding (sort of).  Let's take inventory of where we are right now.

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

Provided by Livevol

On the stock side we see price moving from ~$25 to $194.50 and now back down to $128. The stock has dropped nearly $70 since its intra-day high on 9-30-2013.  That's an abrupt move in about six weeks.  The downward momentum is evident today along with a volatility spike reflecting greater risk in the share price in the next 30-days.

What's the news today? Well, it's sort of a summary of what the issue has been since 9-30-2013:

---
Shares slumped Monday and showed little sign of stemming the downside momentum that has picked up steam over the past six weeks.

From car fires to a sour outlook to valuation concerns, the stock has lost more than 35% of its value since hitting a record high of $194.50 on Sept. 30.

Tesla shares on Monday fell more than 9% to $123.11, a four-month low. The stock is still up 265% this year despite the recent drop, although it had risen as much as 478%.

Last week at the DealBook conference, CEO Elon Musk tried to give assurances that there was no reason to recall the Model S despite three car fires that have prompted questions about the car’s safety.

He also addressed the company’s valuation, saying the high stock price has been a distraction and that the recent decline made the value a better deal for potential investors. His comments came after he said in October that the stock had “quite a high valuation, a higher valuation than we have any right to deserve.”

Source: The Wall St. Journal via Yahoo! Finance; Tesla Troubles Mount: Shares Tumble to Four-Month Low, written by Steven Russolillo.
---

There you have it. I wrote earlier this month:

---
11-6-2013
TSLA shares are down b/c while the demand for their product is high, they can't keep up with production.

That's it... They didn't hit some weird rumor numbers that were floating around the internet, but that's just... well, rumors and speculation. Now the stock did benefit from those rumors (maybe), and thus the stock drop could make sense. But let's not lose sight of the bigger picture:

This is a firm with demand outpacing production for a $70,000 - $100,000 per unit product.
---

But I'm off that story and on to a volatility story. Let's look at the two year IV30™ chart in isolation, below.

Provided by Livevol

Note that during this stock drop the implied volatility has actually been falling.  That's very unusual and could be seen by some (like me) that the firm is in fact closer to "proper" valuation now than it was pre-stock collapse.

Here's the thing though, there is something in the Skew that changed a while ago and has NOT changed recently in TSLA and this is quite interesting.

First, let's turn to the Skew Tab for TSLA in August of this year (2013).

Provided by Livevol

Note the skew shape across the front three months; it's "normal"  The Out-of-the-money (OTM) puts are priced to higher volatility than the at-the-money (ATM) option and the OTM calls.  To read more about skew, what is and why it exists you can click the title below:

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

While TSLA had normal skew back then (with the stock price at $135), the skew shape shifted dramatically as the long interest grew.  Let's turn to the Skew Tab as of today, below.

Provided by Livevol

Now we can see a parabolic skew shape, which means that the option market reflects equally elevated risk to the upside and the downside.  So, while the stock has been collapsing, the option market still reads "upside has potential."  Watch this skew shape, if it turns back to the "old shape" (which is really a normal shape), then that would mean the option market no longer reflects that upside potential and that would in fact be a paradigm shift (again) for TSLA.

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.

Largest Gainers and Losers

Provided by Livevol

To read the TTS blog, click on the title, below:
Tile Shop (TTS) - Stock Collapses on Fraud Accusations; But Order Flow May Be A Cheater of a Different Type... Fraud on a Fraud?



This is 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.

Tile Shop (TTS) - Stock Collapses on Fraud Accusations; But Order Flow May Be A Cheater of a Different Type... Fraud on a Fraud?

TTS halted trading at $12.95, down 39% with IV30™ exploding up 192.8%. The Symbol Summary is included below.


Provided by Livevol

Tile Shop Holdings, Inc. is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States.

This is an order flow note -- pre-event order flow that may have been based on private information.  First, obviously, there is some news today.  Here is a snippet:

---
Tile Shop plunges after short-seller claims profits overstated
Stone tile retailer Tile Shop Holdings (TTS) is tumbling after Gotham City Research alleged that the company has drastically overstated its profits. WHAT'S NEW: Tile Shop's 2013 earnings are overstated by over 200%, alleged Gotham City, a research firm that sells stock short. Moreover, Tile Shops' largest supplier, Beijing Pingxiu, is a related company and Tile Shop has not disclosed that relationship, according to Gotham City. The tile retailer's creditors probably won't grant it any more loans until its accounting errors are corrected, wrote the firm, which thinks Tile Shop's stock is worth just $1.54-$3.34 per share.

Source: TheFlyOnTheWall via Yahoo! Finance; Tile Shop plunges after short-seller claims profits overstated
---

That is scary stuff -- an accusation of outright fraud.  Unfortunately, there may be some fraud associate with the option trades prior to this news.  A fraud into a fraud?  Well, let's not get over excited, here are the facts.

First, the Stats Tab below illustrates that TTS averages 162 total puts traded per day over the last 90 days.


Provided by Livevol


OK, next, let's look at 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).

Provided by Livevol

We can see very easily that the stock has collapsed and the implied volatility is at totally unprecedented levels.  But that's not this story.  The story is pre-event order flow, so let's look at it remembering the average of 162 puts traded per day on average.

I have included the Options Tab from today, check out the open interest (OI) in the Dec 20 puts and the Feb 20 puts (highlighted in yellow).

Provided by Livevol

Note that the Dec 20 puts are now worth ~$7.00 and the Feb 20 puts are now worth ~$7.50.  So what?...  Here's what...

Check out the Options Montage and days largest trades from 11-12-2013, below.

Provided by Livevol

The volume in the Dec 20 puts was 1,022 (again, the total daily average volume in puts is 162).  And, though not pictured, the volume in the Feb 20 puts was 522 on an OI of 1312.  That OI rose the next day to 1,802 (which is where it sits today).

We can see the trades at the bottom of the image above -- The Dec 20 and Feb 20 puts are purchases for $1.05 and $2.00, respectively.  Further, the OI in the Feb 20 puts looks like this, by date:

11-6-2013: 155
11-7-2013: 1,040
11-12-2013: 1,312
11-14-2013: 1,802

Don't be fooled by some of the trades.  they look to the casual observer to be on the bid and therefore sales, but they are not.  Someone bid those options to $1.20 when the NBBO was $0.95 x $1.25.  that bid was hit, but that means the trade was buyer initiated.  very much the finger print of a professional trader hiding order flow (or from a less improprietous perspective, just a trader looking for a discount on some puts).

So what do we have?

A firm that averages 162 puts traded a day saw 1,488 trade on 11-14 with a large accumulation prior to that in the Feb 20 puts.  And what was the stock price when the trades happened?... How about $23...

The stock price now... How about $12.95 and halted.

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.

Boeing (BA) - Did You Know BA Returned 100% in Two-years and Risk Adjusted Smashed the S&P 500? Check This Out...

This article was posted: Wednesday, November 13, 2013

BA closed Wednesday trading at $133.17, up 0.6%, with IV30™ down 2.7%. The Symbol Summary is included below.


Provided by Livevol

The Boeing Company (Boeing) is an aerospace company. The Company operates in five segments: Commercial Airplanes, Boeing Military Aircraft (BMA), Network & Space Systems (N&SS), Global Services & Support (GS&S) and Boeing Capital Corporation (BCC).

This is actually a very short note simply to alert everyone, including myself, that this big boring airplane / defense firm has returned over 100% over the last two years and has more big news coming out.  I'll compare the risk return profile to the S&P 500, and eyes will pop, I'm guessing... mine did...

 Here's a snippet from an article today:

---
DUBAI/PARIS (Reuters) - Boeing (BA) looks set to dominate next week's Dubai Airshow with more than $100 billion of deals as it aims to launch its latest long-haul jet with up to 250 potential orders from as many as five airlines, industry sources said.

The U.S. planemaker is pressing ahead with the launch of its 777X mini-jumbo despite uncertainty over where it will be made, with workers at the existing 777 plant outside Seattle holding a ballot over a new employment contract on Wednesday.

Bulging civil and military bank balances in the Gulf remain a magnet for Western aerospace executives as they seek to tap thriving demand for jetliners and combat aircraft that offer some respite from defence cuts at home.defense

A widely expected potential order for as many as 150 of the new 777X passenger jets from Dubai flag carrier Emirates (EMIRA.UL) could come close to matching the $62 billion of deals amassed at the last Dubai show two years ago.

"Dubai's success is related to its airlines. It's a global hub now and Dubai did this by buying planes and constantly renewing its fleet," said John Sfakianakis, chief investment strategist at Riyadh-based asset management firm Masic.

"Abu Dhabi, Qatar and Saudi Arabia are also investing billions in aviation to be able to connect to the world. These states have to continue to invest if they want to expand."

Source: Reuters via Yahoo! Finance $100 billion Boeing order bonanza to dominate Dubai show, written by Praveen Menon and Tim Hepher.
---

Wow...

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

Provided by Livevol

Look at that stock chart.  We can see that over this two-year period BA is actually up 100% (or ~$50 billion in market cap).  And what else do you get with BA?... how about historical realized volatilities of:

HV10™: 15.05%
HV20™: 23.08%
HV30™: 24.62%
HV60™: 21.66%
HV180™: 21.01%

A 100% return with a standard deviation of returns of 21.01% leaves an information ratio (IR) of ~ 4.8 (just divide the two numbers).  The S&P 500 over this time period:

Return: 42%
HV180™: 11.39%

That's an IR of 3.72 (BA was 4.8).

Here's a stock chart comparing the two (BA in yellow, SPX in red):

Provided by Livevol


Is BA still a big boring airplane / defense firm or a ridiculously good investment over the last two-years?  The future, no idea. The past, we have an idea...

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.

Crocs (CROX) - Stock Pops Volatility Explodes on News that Company Looks to Go Private

CROX is trading $13.82, up 9.3% with IV30™ exploding up 36.3%. The Symbol Summary is included below.


Provided by Livevol

Crocs, Inc is a designer, manufacturer and distributor of footwear and accessories for men, women and children. As of December 31, 2012, the Company sold its products in more than 90 countries through domestic and international retailers and distributors and directly to end-user consumers through its Company-operated retail stores, outlets, kiosks and Webstores.

This is a vol and stock note on the day.  CROX spiked mid-day both in price and volatility, it seems to have stemmed from a note that CROX is considering going private.  I have included the tick chart below -- the top portion is the stock price, the bottom is the implied volatility for the Nov options.


Provided by Livevol

We can see how the price spiked and the Nov (three day options) volatility went from ~34% to ~ 134% in one minute. Whoa...

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

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

Provided by Livevol

It's the stock side that has the most information, namely it's been going down.  Check out the gaps in those three earnings releases I have highlighted (the blue "E" icon represents the earnings date).  Before today, the stock was trading near multi-year lows.  So what?.  Well, the market seems to reflect that if the stock does go private, the buyout price for shareholders will be a premium to that low price.

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

Provided by Livevol

Across the top we can see the monthly vols are priced to 60.21% for Nov (up 24.9 vol points) and 41.63% for Dec (up 10.9 vol points).  While the stock is up, it's tempered -- off of the highs of the day.  This will be an interesting one to watch as these news snippets (even if they prove to be true in outcome) discuss events that a long time to finalize (see DELL).  So, "should" the volatility be elevated in the near-term... I guess we'll see...

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.

Yum! Brands (YUM) - Volatility Rises with Stock; Calendar Diff Opens for Next 4 Days

YUM is trading $71.92, up 1.9% with IV30™ up 2.5%. The Symbol Summary is included below.


Provided by Livevol

Yum! Brands, Inc. (YUM) is a quick service restaurant company based on number of system units, with approximately 37,000 units in more than 120 countries and territories. The Company through its three concepts of KFC, Pizza Hut and Taco Bell (the Concepts), develops, operates, franchises and licenses a worldwide system of restaurants, which prepare, package and sell a menu of priced food items. Units are operated by a Concept or by independent franchisees or licensees under the terms of franchise or license agreements.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. And while Nov expiry is just days away, this vol diff opened up today and is worth a look.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Let's start with the Skew Tab, below.

Provided by Livevol

We can see two phenomena here:
1. The red curve (Nov option volatility) is above the yellow curve (Dec option volatility) for all strike prices.

2. The red curve (Nov options) shows a distinct bend to the downside, which means the out-of-the-money puts (OTM) are priced higher than the at-the-money (ATM) options and the OTM calls.  There's also a small upside bend to the OTM calls.  In English, the option market reflects a higher likelihood of both an upside or downside move in YUM stock price in the near-term (the next four calendar days) than it does in the medium-term (December expiration).

To read about option skew, what it is and why it exists, you can read the post below by clicking on the title:

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

Now we can 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).

Provided by Livevol

On the stock side we can see a nice appreciation from the low $50's to now over $70.  Looking a bit more myopically we can see YUM stock rise from $66.48 on 10-9-2013 off of a disappointing earnings release (the blue "E" icon represents an earnings date) back to $71.92 in about a month.  So, the stock has recovered to pre-earnings levels. 

What's interesting about today is that while the stock is up, the implied volatility is up too.  Further, the IV move in Nov is substantially larger than Dec (which we'll see below), and that difference has created a wider time spread.

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

Provided by Livevol

Across the top we can see the monthly vols are priced to 33.40% for Nov and 21.45% for Dec.  Also note the little green numbers in parenthesis below the monthly vols numbers -- Nov is up 5.3 volatility points today while Dec is up just 0.5 volatility points.  The end result is that calendar spread we see in the Skew Tab. This has certainly turned into a compelling short-term volatility phenomenon.

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.