Tuesday, September 2, 2014

* Stratasys (SSYS) - Option Market Risk Hits All-time Lows. What's Going on in SSYS?

Share on StockTwits

SSYS is trading $120.78, up 0.7% with IV30™ up 5.4%. The Symbol Summary is included below.

Provided by Livevol

Disclosure: I am long SSYS shares.

The forward looking stock price risk as reflected by the option market in SSYS is near all-time lows. At the same time, many of the financial, earnings & growth measures are becoming quite volatile.  Is risk mis-priced in SSYS?

The four-year (ish) stock chart is included below.

Provided by Yahoo! Finance

At this point I think we're all familiar with the meteoric rise in the 3D printing stocks, and certainly in the leaders, which SSYS is.  There was a bump, and SSYS is recovering that lost equity value as it nears its prior highs.

But it's the forward looking risk that has my attention.  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.  So the risk is essentially at an all-time low... which is odd for several reasons, not the least of which is the next four charts I want to share.

Chart #1: Total Revenue

This revenue growth is the realization of the excitement behind the technology.  This revenue growth is also the driver of rapidly expanding book values.

Chart #2: Book Value per Share

Those first two charts are volatile but uni-directional... i.e. 'up.'  It's the next time series chart that explores a greater risk, bi-directional outcomes.

Chart #3: SSYS Earnings from Continuing Operations Margin %

SSYS is investing in its business and there are a lot of other reasons the earnings time series looks like this... The point here is less about identifying the source, and more about the fact that... yes, there is execution risk here. It's not straight up forever.  So... why is the risk in the stock price as reflected by the option market so low?

Finally, the Options Tab is included below -- we can see an explicit expression of the option market risk pricing.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$113.50, $128.50] by the end of trading on Sep 19th.

We can see a price range of [$108, $132] by the end of trading on Oct 17th.

  • 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.

This is trade analysis, not a recommendation.

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

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

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

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

No comments:

Post a Comment