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SSYS is trading $95.42, down 2.9% with IV30™ up 0.2%. The Symbol Summary is included below.
Provided by Livevol
Update 8-7-2014 (right after earnings)
Provided by Livevol
SSYS has smashed through the price range the option market priced which was [$88, 102]. Volatility was priced far too low.
Here's the news:
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[T]he company this morning reported Q2 revenue and earnings per share that easily surpassed analysts’ estimates, and forecast full-year revenue higher as well.
Revenue in the three months ended in June rose almost 70%, year over year, to $178.5 million, yielding EPS of 55 cents.
Analysts had been modeling $156.97 million and 44 cents a share.
For the year, the company sees revenue of $750 million to $770 million, and EPS of $2.25 to $2.35, above a prior forecast for $660 million to $680 million, and $2.15 to $2.25 per share, and also above the average estimate for $689 million and $2.18 per share.
Source: Barron's via Yahoo! Finance Stratasys Soars 20%: Citi Sees ‘Material Upside’ in Higher Year View, written by Tiernan Ray.
As we'll read below, the stock has seen two cycles -- very up and very down and in the meantime the stock had stagnated. It seems a new cycle may have started.
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Back to original post:
This is an earnings preview, volatility and stock note and is just one in the series for this earnings season. To date, the option market in general has under-priced risk in most of the names I have discussed, meaning the stock prices have moved more than the amount the option market was pricing. Here's a quick list:
Disclosure: I am long SSYS, but very small and not in the hedge fund, just my personal account. I have no opinion on earnings, this is a longer term hold (unlike FEYE which is a short-term short)
Conclusion
As the market has been declining and momentum has turned totally upside down (Momentum is Imploding), the risk in the option market is also increasing and that increase is now reflected in single stock names (like SSYS). What once was a rather obvious under-pricing of risk is turning.
Those are the exact words I used to preface FEYE. Here's a difference for SSYS, the risk into earnings is actually a bit low relative to the past seven earnings cycles and there's a meaningful change happening in the financial that is of note. It's not 'drunken sailor' low, but it's low (relative to the past).
The all-time stock chart for SSYS is included below.
Provided by Charles Schwab optionsXpress
The stock has had essentially two cycles (see chart):
Cycle #1: A rise from ~$25 to ~$137 (~+450%) in about two-years.
Cycle #2: A drop from ~$137 to ~$87 (~-36%) in about ten-months.
The stock is up 283% in the last three-years as of this writing.
Much like FEYE, these cycles in SSYS are quite long, unlike some of the more volatile MOMOs (NFLX, TSLA, TWTR,etc). It's there protracted stock cycles that do make earnings 'feel' less risky.
Obviously, I don't know where SSYS will go off of this earnings release.
Let's turn to the IV30™ chart in isolation, below.
Provided by Livevol
The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days).
In English, the red curve is the risk in future stock price movement. The blue "E" icons represent earnings dates (highlighted in yellow), and we can see that risk has increased into earnings has been declining overall for SSYS. That, in my opinion, is the maturing of a company which make the equity price less risky (i.e. fewer unknowns). The idea that SSYS is 'make or break' on a single earnings release has long been forgotten (right?).
The company actually had positive Net Income for 2011 and 2012, then dug into some serious SG&A and R&D expenses in 2013 to push the company well into the red. But, it's a growth company, so that's OK as long as the dollars spent are going to be several fold dollars returned. We'll see...
It' that last fact: the Net Income drop and huge drop in earnings from continuing operations due to SG&A and R&D expenses that does add a flare of risk to this earnings release. It's this single phenomenon which presents interesting (and I believe, elevated) risk into this earnings cycle.
Finally, the Options Tab is included below.
Provided by Livevol
Using the at-the-money (ATM) straddle in the Aug8 weekly options we can see that the option market reflects a price range of ~[$88, 102].
Using the Aug15 monthly options, that range is ~[$86.50, $104.50].
- If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
- If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
- If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.
Final note: Don't bet on this earnings event or this stock simply because I am. My model is my bet, it shouldn't be yours.
This is trade analysis, not a recommendation.
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