Amarin (AMRN) - Bio-tech Day of Reckoning Approaches; Vol Elevates, Skew Points to Upside Risk

AMRN is trading $11.30, up 7.7% with IV30™ up 20.9%. The LIVEVOL® Pro Summary is below.



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Amarin Corporation plc (Amarin) is a late-stage biopharmaceutical -company with expertise in lipid science focused on the treatment of cardiovascular disease.

This is a vol and stock note on a bio-tech with impending news due out soon with some awesome skew. Here's the news:

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With Amarin's (Nasdaq: AMRN) new triglyceride-lowering drug Vascepa approved and potentially ready for launch starting in 2013, some decisions have to be made now about how the drug is going to be marketed -- and who's going to do it. Many investors want to see a buyout so that a drugmaker with a larger marketing department can more easily promote Vascepa. However, with the drug's new chemical entity, or NCE, status still up in the air, it seems as though buyout negotiations are on hold. This means that Amarin might be launching this drug on its own.

Source: The Motley Fool via Yahoo! Finance Why Do Amarin Shareholders Want a Buyout?, written by Max Macaluso, Ph.D. and David Williamson.
---

That article also has a great video which explains the three scenarios for AMRN:
(1) Buyout
(2) US partner with deeper pockets to market
(3) Do it yourself -- build sales team, build a marketing campaign (which means raise money and create dilution, likely).

That same video does point out that if scenario #3 is the only way to go, that AMRN's management does have experience in this same field, so it's still a viable and semi-attractive alternative. Of course, everyone long the stock loves a buy-out...

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



On the stock side we can see a nice return over the last year from $6.73 to now over $11.  Looking back two years, the stock is up from $3.61. So, shareholders of longer-term horizons have done well with AMRN and have reason to believe that they will continue to do well in the future.

To examine the vol I have included a two-year IV30™ chart, below.



We can see how elevated the implied has gotten over the last couple of years, so the level today is high, but not out of the ordinary. The 52 wk range in AMRN IV30™ is [62.95%, 161.50%], putting the current level in the 64th percentile.

But, it's the Skew Tab (below) that tells the story.



We can see a few phenomena:
(1) The Nov30 weekly options show an extreme upside skew reflecting greater upside potential than downside risk in the very near-term.

(2) the ATM vol in Dec is the highest of all three expiries pictured, reflecting that the risk of "news" is greatest in the Dec cycle.

(3) Dec also shows an upside skew and a large vol diff has opened up between the Dec and Jan'13 upside calls.

Finally, let's turn to the Options Tab.



Across the top we can see the vols are priced to 99.53%, 125.15% and 119.82% for Nov30(W), Dec and Jan'13, respectively. The highest risk is priced into Dec, though Jan'13 is right behind it. What's so interesting is the different pricing in the OTM calls (see Skew Tab). The option market certainly reflects elevated vol in the near-term, but in particular, upside risk (potential). This will be a very interesting one to watch unfold and I would not discount the downside risk, even though the skew points the other way.

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Best Buy (BBY) - The Whole Story; How a $26 Bid Delay Might Leave the Company at Zero

BBY is trading $11.94, down 13.2% with IV30™ down 14.1%. The LIVEVOL® Pro Summary is below.



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Best Buy Co., Inc. is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.

With BBY diving again off of earnings and the mysterious potential buyout looming from the former Chairman at $26, I though it was a good time for another update.

The first post I published regarding his wild ride was on 7-2-2012; sort of a pre-cursor to the bigger news. You can read that post here:
Best Buy (BBY) - Stock and Vol Up on LBO "No" News

Back then, the stock was trading just under $22. Here's that Symbol Summary:



Then, on 8-29-2012, I wrote this: Best Buy Co. (BBY) - Options Reflect Upside Potential in Near-term; Vol Diff Gaps Open to Upside

At the time of the 8-29-2012 post, BBY was trading above $18. I have included the Symbol Summary from that day, below:



Here's the news that started this story and a bunch of headlines / snippets to catch you up if you're not already familiar:

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(Reuters) - Best Buy Co Inc's (BBY.N) former Chairman Richard Schulze is not expected to present a buyout or other proposal to the company's board anytime soon, a person familiar with the situation said.

Media reports said Schulze was close to presenting an offer for the consumer electronics chain. Discussions around a leveraged buyout of the company are still in the early stages, the person said.

Source: Reuters via Yahoo! Finance; No bid by Best Buy ex-chairman to come soon: source, reporting By Nadia Damouni; editing by Gerald E. McCormick.
---

So that was sort of no news with news expected soon, but denied. But here are some headlines from Briefing.com in chronological order (Provided by Briefing.com (www.briefing.com)):

06-Jul-12 15:23 ET: Best Buy to layoff 2400 employees - CNBC

11-Jul-12 09:33 ET: HHGregg at a 3.5 year low following Q1 warning and FY13 guidance cut, now off ~32% (7.80 -3.74) -Update BBY -6%

13-Jul-12 09:42 ET: Best Buy trading lower off the open; Hearing cautious comments at Cleveland Research

30-Jul-12 08:44 ET: Best Buy spikes to $20 then comes back to ~$19 following renewed takeover reports;

30-Jul-12 08:43 ET: Best Buy founder Schulze recruting executive team for buyout - Bloomberg

06-Aug-12 08:35 ET: Best Buy Founder Richard Schulze confirms proposal to acquire BBY for $24.00 to $26.00 per share

Richard Schulze, Founder and former Chairman of BBY, submitted a written proposal to the Best Buy Board of Directors to acquire all of the outstanding shares of the company that he does not already own for a price of $24.00 to $26.00 per share in cash. The purchase price, which is based on current public information and is subject to due diligence, represents a premium of 36% to 47% to Best Buy's closing stock price of $17.64 on August 3, 2012. Schulze is Best Buy's largest shareholder, controlling 20.1% of Best Buy shares.
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And finally, the news on 8-29-2012:

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29-Aug-12 07:08 ET: Best Buy: Buyout feasible albeit unlikely - Oppenheimer

OpCo notes clients continue to ask whether the firm believes former BBY chairman Richard Schulze will prove successful in his attempt to take the Co private. The BBY situation is clearly fluid. Shares are likely to remain susceptible to an ongoing deluge of data from BBY and its potential suitors. In the end, firm views a deal to purchase Best Buy as unlikely. Ample cash flow and a still healthy balance sheet suggest that BBY could support the added leverage associated with a leveraged buyout (LBO). OpCo believes, however, that potential private equity buyers will ultimately balk at a deteriorating business model that is increasingly falling victim to the inroads of new non-traditional CE competitors and a weak product cycle.

Provided by Briefing.com (www.briefing.com)
---

Back then, $26 seemed like a reasonable premium to take the company over. Now... well... How about this news today:

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Best Buy Co. (NYSE:BBY) founder Richard Schulze faces a looming deadline to review the firm’s financials as a part of his proposed takeover and he is now collaborating with three private-equity firms, including Cerberus Capital Management, in conducting due diligence. According to inside sources who wish to remain anonymous, Schulze has requested an additional 30 days for the procedure, even though he and the advisor firms have been evaluating the data since September. The company granted him 60 days for a proposal upon his announcement that he would bid as much as $26 a share on August 6th.

Source: Wall st. Cheat Sheet via Yahoo! Finance Best Buy Founder Wants More Time, written by Mark Lawson.
---

All I can say to that is, you're damn right he wants more time, the stock is cratering and $26 seems almost ridiculous at this point.

Let's turn to the Charts Tab (two-years) is 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 cataclysm that has been the last two years. On 11-22-2010 BBY closed at $44.86. As of this writing the stock has had a two-year return of -73%. The chart makes it quite apparent that the levels reached today are multi-year lows.

I have included a two-year vol chart (IV30™ only), to better examine that trend.



As the stock has been falling to new lows, the implied has been rising to new highs. The dip today is off of the earnings release, but watch it climb again if the news flow stays the same... That is bad and with a lot of uncertainty.

Looking to the Skew Tab, we can see some interesting risk reflected by the option market.



Note how the Dec options show a decidedly upside skew though the ATM vol is almost identical to Jan'13 (look at the $12 strike). That is, the option market reflects greater upside risk (potential) than downside risk. The Jan'13 options show a rather flat skew and the Mar'13 options show a "normal" skew, with the OTM puts priced to higher vol the ATM options and OTM calls.

In English, the upside potential -- with breath held, is reflected in the Dec expiry. That Schulze due diligence completion and the result could be gigantic for BBY as a going concern.

Finally, let's turn to the Options Tab.



We can see the monthly vols are priced to 79.15%, 79.24% and 71.80% for Dec, Jan'13 and Mar'13, respectively. But, again, look at the skew difference between the Dec options and Jan'13 to the upside. While Dec and Jan'13 ATM vol are essentially the same, the Dec/Jan 17 call spread (for example) shows a 13 vol point difference (Dec elevated to Jan'13). On the other side, the Dec/Jan'13 9 put spread shows a ~4 vol point diff in favor of Jan'13 -- so totally backwards from the calls.

Dec may be make or break time for BBY and I'm guessing the board in retrospect would liked to have jumped to accept the $26 bid made by Schulze a few months ago. Now the business may find itself trying to stay above zero.

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Barclays (BCS) - Stock up 70% and Vol Hits Annual Low. Have the Mighty Fallen and Risen that Much?

BCS is trading $15.83, up 5.7% IV30™ down 10.2%. The LIVEVOL® Pro Summary is below.



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Barclays PLC (Barclays) is a global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services.

This is a quick vol note and really just a reminder of how quickly vol can drop in a name even when it has been embroiled in controversy. Once the news is out and controversy digested, then things are often times back to... ya know... normal.  Or is this normal?

Let's look to the Charts Tab (one year) is 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 gaps down and eventual drop to single digits for BCS stock. Even more abrupt has been the recovery. The stock rose from a close of $9.31 on 7-25-2012 to now just under $16, or a 70% rise in less than four full months... Incredible... The 52 wk range in stock price is [$8.96, $16.17], so the stock is flirting with an annual high.

I've included just an image of the IV30™ (on year), below.



On the vol side we see how elevated the implied was several months ago and how low it has gotten of late. The 52 wk range in IV30™ is [33.87%, 87.04%], putting the current level in the new annual low category. My how the mighty have fallen and risen. Again, incredible.

Let's turn to the Options Tab for completeness.



We can see across the top the monthly vols are priced to 33.77%, 37.01% and 38.87% for Dec, Jan'13 and Mar'13, respectively. Note that Jan'13 vol is even lower than Dec vol. This is a great reminder of how often in finance, "calmer heads prevail." This may also be an example of vol that is too low... right?... Or no?...

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OfficeMax (OMX) - Stock Reaches New Annual High, But Reasoning is... Different. Is Vol Too Low?

OMX is trading $9.48, up 15.2% with IV30™ up 8.6%. The LIVEVOL® Pro Summary is below.



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OfficeMax Incorporated (OfficeMax) is engaged in both business-to-business and retail office products distribution. The Company provides office supplies and paper, print and document services, technology products and solutions and office furniture to large, medium and small businesses, government offices and consumers.

This is a depressed vol note in a stock popping and continuing a run of days each
making new annual highs.

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



On the stock side we can see the awesome rise y-o-y and even more notably, over the last couple of months and weeks. Here are some return stats:

Y-O-Y: $5.31 --> $9.48 +78.5%
7-25-2012: $4.27 --> $9.48 +122%
10-24-2012: $7.19 --> $9.48 +31.8%

The 52 wk range in stock price is [$4.06, $8.75], so obviously the price rise today is well into new annual high territory. Here's the news pushing the stock over the last few days:

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11-16-2012
(Reuters) - Shares of U.S. office supplies chain OfficeMax Inc (OMX.N) rose as much as 29 percent on Friday on expectations the company will benefit from an initial public offering of wood products maker Boise Cascade LLC, in which it holds a 20.4 percent stake.

[...]

"This gain is expected to be recognized in earnings as the company's investment is reduced," OfficeMax said in a filing with the Securities and Exchange Commission on November6.

Source: Reuters via Yahoo! Finance; OfficeMax shares soar on expected gain from Boise Cascade IPO, written by Ranjita Ganesan in Bangalore; editing by Ted Kerr.
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So that's today... But before today,the stock climb was earnings related...

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11-6-2012
What: Shares of office-products supplier Office Max (NYSE: OMX) jumped as much as 18% today after a better-than-expected earnings report.

So what: Like its peer Office Depot (NYSE: ODP) , whose shares were also flying today, Office Max was able to beat estimates by cutting costs. Revenue, nonetheless, slipped 1.7% from a year ago, but adjusted EPS increased slightly to $0.27, topping estimates of $0.25. Same-store sales dropped by 2.1%. Shares of the retailer have come roaring back in the past few months, doubling since August, as some see it as a value play.

Source: The Motley Fool via Yahoo! Finance; Why Office Max Shares Soared, written by Jeremy Bowman.
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And then even before that...

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9-14-2012
What: Shares of office supply chain OfficeMax (NYSE: OMX ) rallied as much as 13% today, following the finalization of the extinguishment of non-recourse debt tied to Lehman Brothers.

So what: It’s a little confusing, but in 2004, OfficeMax received an $871.5 million Lehman-backed note in connection with a timberlands sale. OfficeMax turned around and monetized the note by issuing securitization notes through a special purpose entity that was backed by Lehman Brothers. Lehman’s bankruptcy in 2008 constituted a default under the terms of the note, and a U.S. Bankruptcy Court order will finally allow the extinguishment of the debt from OfficeMax’s books. OfficeMax expects to report a one-time gain of $671.1 million in the third-quarter, and anticipates the increased balance sheet clarity will help investors better understand the company.


Source: The Motley Fool via Yahoo! Finance; Why OfficeMax Shares Popped, written by Sean Williams.
---

Seems like lots of good stuff, but is it really? The IPO thing today is a one-time event. The debt resolution was a one-time event and the cost cutting feels like it's not a perpetual event. Here's where it gets interesting...

Let's turn to the vol chart for the last year (IV30™).



What we can see is how depressed the vol is relative to its own annual history. A vol decline as stock rises is common place, but let's not lose sight if why the stock is rising -- these aren't long-term trends (IMHO) -- these are sort of, one offs in succession. The 52 wk range in IV30™ is [40.99%, 91.74%], putting the current level in the 26th percentile.

So as the stock is making new annual highs on one-time events and rather questionable earnings (in terms of repeat-ability), the vol is dropping? This feels a little... off, no?

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



Across the top we can see the monthly vols are priced to 54.56% for Dec and 54.25% for Jan'13 -- so still in the bottom quartile of annual 30-day vol. The options have been very active today with more than 7,200 contracts trading on total daily average volume of just 544. The Stats tab is included below.



Note the net premium and rising vols by month (in the Options tab across the top) -- this is the circumstantial evidence that vol buyers are coming in today. Perhaps the 26th percentile is too low? Ya know... or not...

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MAP Pharma (MAPP) - Development Stage Bio-tech in Unchartered Waters – FDA Silence is Deafening as Vol Explodes and Stock Tumbles on Nothing…

MAPP is trading $12.42, down 5.9% with IV30™ exploding up 59.8%. The LIVEVOL® Pro Summary is below.



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MAP Pharmaceuticals, Inc., is a development-stage company. As of December 31, 2011, the Company was focusing to advance its product candidate, LEVADEX (MAP0004) orally inhaled migraine therapy, which is an orally inhaled version of dihydroergotamine mesylate (DHE), for the acute treatment of migraine.

This is a vol and order flow note in a stock that has some absolutely bewildering news and risk surrounding it. First, let’s look at the Stats Tab and day’s biggest trades (below) and then we’ll get into the news.





We can see that over 8,800 option contracts have traded already on a total daily average option volume of just 358. The Dec 10 puts are the most active line, with nearly 4,800 changing hands.

So what’s the news? Check this out:

MAPP re-submitted to the FDA for their novel migraine drug (inhaler) Levadex on Oct. 16th, 2012. This was a second attempt at approval following an initial rejection letter in March of this year. But, FDA rules state that the agency has 14 days to accept a re-submission and assign a new approval date decision. So… 14 days after Oct 16th is Oct 30th. Today is Nov 15th and MAPP has still heard nothing from the FDA – I mean zero communication. (Source: MAP Pharma’s Awkward FDA Silence; TheStreet.com via Yahoo! Finance, written by Adam Feuerstein).

Let’s look at the Charts Tab (six months), below and we’ll see some incredible stuff. The top portion is the stock price the bottom is the vol (IV30™ - red vs. HV20™ - blue vs. HV180™ - pink).



We can see that on 10-31-2012 (the latest date that MAPP should have received some news from the FDA), the stock closed at $15.42. As of this writing, the stock is down ~19% from that date, with an abrupt drop coming in the last week. The 52 wk range in stock price is [$11.11, $17.92], surprisingly small for a small bio-tech development company with FDA submissions.

On the vol side we can see the incredible rise in the implied as the stock has been dropping. On 10-31-2012, the IV30™ closed at 48.56%. As of this writing, the IV30™ is up 134% from that date, with a 60%+ move today alone. The 52 wk range in IV30™ is [34.74, 184.61], putting the current level in the 55th percentile. IMHO, as long as there is no news from the FDA, that vol will rise – and perhaps rise abruptly like today.

Let’s turn to the Skew Tab, below.



We can see how elevated Dec is to the back months, so the option market does reflect risk (read: FDA news) by Dec expiry. I would hope so?...

Finally let’s turn to the Options Tab.



Across the top we can see the monthly vols are priced to 118.45% and 92.32 for Dec and Mar, respectively. Again, that vol diff is the reflection from the option market that “some news” is likely coming in the near-term. In the meantime, check out some specific prices. The Dec 7.5 puts are priced to $0.40 fair value or ~160% vol – whoa. The Dec 17.5 calls are priced to $0.25 fair value or ~94% vol. Keep in mind the 52 wk range for the stock is [$11.11, $17.92],

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Two Harbors (TWO) - REIT Vol Breaches Annual High on FED Stimulus Action; Stock Dropping Hard

TWO is trading $10.60, up 4.4% with IV30™ up 17.4%. The LIVEVOL® Pro Summary is below.



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Two Harbors Investment Corp. (Two Harbors) operates as a real estate investment trust (REIT). The Company is focused on investing in, financing and managing residential mortgage-backed securities (RMBS), residential mortgage loans, residential real properties, and other financial assets.

This is a very quick vol and stock price note in a REIT that has beached an annual high in IV30™ and has been catapulting lower in stock price of late. Before we get into this specific name, here's some evergreen news on REIT's of late:

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The Vanguard REIT ETF -- which tracks the performance of an index that measures the performance of publicly traded equity REITs -- has stalled after the Federal Reserve in September announced plans to purchase $40 billion in mortgage-backed securities a month. Five Star Equities examines the outlook for diversified REITs and provides equity research on Hatteras Financial Corp. ( NYSE : HTS ) and Two Harbors Investment Corp. ( NYSE : TWO ).

Investors have long been attracted to the high yields of mortgage REITs, which currently averages around 13 percent, nearly 7 times the average dividend yield of the S&P 500. The Fed's announcement has caused drops in spreads, bond yields and homeowner's borrowing costs, and as a result company's earnings and dividends have been under pressure.

"Through the use of leverage, these REITs have yields in the midteens. At this time, mortgage REITs are benefiting from historically low short-term rates, but tightening spreads, or a sudden freeze in the credit markets, would have a significant negative impact on these firms," Morningstar analyst Patricia Oey wrote in a report.

Source: Five Star Equities via Yahoo! Finance; REITs Begin to Struggle as Stimulus Measures From the Federal Reserve Pressure Spreads and Bond Yields Lower.
---

Let's look at the Charts Tab (one year) for TWO, 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 how abruptly the stock has declined of late. On 10-25-2012 the stock closed at $11.97. As of this writing, the stock is down 11.4%, and keep in mind, the yield is likely in the single digits. The 52 wk range in stock price is [$7.66, $12.20].

On the vol side we can see how the implied has spiked of late, in particular today. The 52 wk range in IV30™ is [8.43%, 34.59%], so the level today is in fact a new annual high. Back in Sep of 2011, the implied actually rose into the high 50% range, so the level today is not a multi-year high.

Let's turn to the Skew Tab, below.



We can see a notable vol diff between the Dec and Mar'13 options. The REIT systematic risk is certainly in play and the option market reflects that risk in the near-term rather substantially.

Finally, let's turn to the Options Tab.



Across the top we can see that Dec is priced to nearly 35% while Mar is priced to just 24.6%. In the REIT wold, this is a very large vol diff.

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Facebook (FB) - Largest Lock-up Period Ends But Stock Rises and Vol Falls; Is Vol too Low?

FB is trading $21.89, up 10.2% with IV30™ down 6.3%. The LIVEVOL® Pro Summary is below.



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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. Ya know... it's Facebook...

This is a stock and vol note -- but really it's focused on the lock up period ending that will essentially double the number of shares of FB on the market. But... the stock is up and vol is down.

Here are some news snippets to paint the picture of the happs:

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Pssst... wanna buy 804,000,000 shares of Facebook (FB)?

Shareholders of the social networking king hope the answer to the above is yes, as yet another share lock-up ends today. It's the latest in a series of shares freed up for early investors to sell in the open market. The 804 million shares potentially coming for sale today compare to 500mm in other post-IPO sales and 421 million shares at the $38 IPO price last May.

With Facebook's stock down nearly 50% from its IPO price and still groping for a bottom, the question is why outsiders would once again want to line up to buy what savvy insiders with greater information want to sell. On August 16th 271 million shares held by investors and directors involved in the IPO were unlocked and shares dropped 6% on massive volumes, closing in the teens for the first time.

Today marks the biggest potential liquidity event remaining in the company's roughly 1.5 billion post-IPO share release.

Source: Yahoo! Breakout via Yahoo! Finance; Facebook Shares: Should Outsiders Buy What Insiders Are Selling?, written by Jeff Macke.
---

The thing is, FB is up kinda size on the news. Here's some more news/analysis:

---
In August, Yelp shares skyrocketed by 25% the day its lockup restrictions on insiders expired.

Well, the same storyline played out today for Facebook, with shares jumping by as much as 11% on its own IPO lockup expiration.

We're talking about a total of 804 million shares that are now permitted to roam around the cabin freely. This is by far the biggest block of shares related to the IPO that are being unshackled, so most were expecting some selling pressure. That nearly doubles the amount of shares floating around out there, which was approximately 921 million before today.

Just because insiders can sell doesn't mean they have to, and the lack of selling pressure today implies they think shares are too cheap. That's a positive side for us outsider investors who aren't privy to as much detail to Facebook's inner workings.

This lockup is the biggest but it's also not the last. There are two more lockup expirations on the horizon,

Source: The Motley Fool via Yahoo! Finance; Facebook Sends the Lockup Expiration Bears Packing, written by Evan Niu, CFA.
---

All very odd... Let's look to the Charts Tab (six months), 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 poor performance since IPO that's been widely discussed. The close on day 1 of public trading for FB was $38.23 (with an intra-day high price of $45). As of this writing, the stock is down 43% from it's opening day close. The all-time range in stock price for FB is [$17.55, $45.00]. I do note that the last earnings release was 10-23-2012 AMC and the next day the stock popped from $19.50 to $23.23 or just under 20% in a day.

In order to examine the vol a little more closely, I've included the IV30™ chart in isolation.



We can see how elevated the implied got into earnings (note the blue "E" icon). But more than that, check out the recent drop in vol. While other lock-up periods have shown rising vol (and dipping stock), today we see the complete opposite. The all-time range in IV30™ for FB is [44.74%, 81.51%], putting the current level in the 11th percentile.

Let's turn to the Skew Tab.



That Nov vol is a little misleading since it represents 2.5 trading days, but we can see how Dec and Jan'13 essentially lie right on top of each other. There really is no sign of a big event occurring today at all in the skew or term-stucure. So maybe this just isn't a big deal?...

Finally, let's turn to the Options Tab.



Across the top we can see the monthly vols are priced to 63.94%, 49.26% and 48.92 for Nov, Dec and Jan'13. I also note the vol changes on the day are -26.4, -2.8 and -2.8 vol points respectively for the same three expiries. So, the option market reflects less risk moving forward (the news is over -- the shares are out) and an implied in the 11th percentile, while the equity market reflects... a higher valuation...

I don't really know, but, should the implied really be near the bottom decile with the stock up double digit % on the day and shares outstanding doubling? What about systematic risk -- fiscal cliff?... No?...

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Western Digital (WDC) - Depressed Vol in "Fiscal Cliff" Fearing Environment

WDC is trading $35.00, up 0.8% with IV30™ down 3.5%. The LIVEVOL® Pro Summary is below.



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Western Digital Corporation (WD) is a provider of solutions for the collection, storage, management, protection and use of digital content, including audio and video. Its principal products are hard drives, which are devices that use one or more rotating magnetic disks (magnetic media) to store and allow access to data.

This is a quick vol note -- for those of you that are vega buyers, this could be an interesting one. I found WDC on a low vol custom scan. Let's start with Charts Tab (six months), 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 pretty volatile ride with rather large ebbs and flows in the underlying price including a gap up on an earnings announcement in late Jul 2012. The 52 wk range in stock price is [$24.80, $45.65].

But it's the vol that caught my eye. I have included a vol chart for the last year, with just the IV30™, below.



It's easy to see here both how depressed the implied is right now and how high it has been over the last year. The 52 wk range in IV30™ is [32.15%, 63.40%], putting the current level in the 8th percentile (annual).

Let's quickly turn to the Skew Tab.



We can see a rather pretty skew shape for both Dec and Jan'13. I believe the next earnings release should be after Jan' expiry -- so we're looking at vol ex-earnings in this skew chart.

Finally, let's turn to the Options Tab.



Across the top we can see that Dec and Jan'13 are priced to 34.75% and 36.93%, respectively. I do note the rise in Apr vol which does have an earnings release embedded in it. In any case, I though this was a compelling low vol name to examine in a "fiscal cliff" fearing market.

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Diamond Foods (DMND) - Stock and Vol Pop on Pending Restatement; Enormous Upside Vol Diff Opens

DMND is trading $20.02, up 12.2% with IV30™ up 21.2%. The LIVEVOL® Pro Summary is below.



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Diamond Foods, Inc. (Diamond) is a packaged food company focused on building, acquiring and energizing brands. Diamond specializes in processing, marketing and distributing snack products and culinary, in-shell and ingredient nuts. The Company sells its products to global, national, regional and independent grocery, drug and convenience store chains, as well as to mass merchandisers, club stores and other retail channels.

I found this stock using a real-time custom scan. This one hunts for calendar spreads between the second and third monthly expiries.

Custom Scan Details
Stock Price GTE $5
Sigma2 - Sigma3 > 10
IV30™ GTE 30
Average Option Volume GTE 1,200

The stock has earnings due out tomorrow, so front month elevated vol is expected – and that will spill into the second expiry. The news pushing the stock and vol today is that the earnings announcement tomorrow will also include the re-stated (read: corrected) results for the fiscal years 2010, 2011 and the first three quarters of 2012. This stock made the news when it found itself embroiled in a nasty accounting scandal with charges of bribery.

Source: San Francisco Business Times via Yahoo! Finance; Diamond Foods to release restated results on Nov. 14”, written by Mark Calvey.

Note that all of this was happening while the company was making acquisitions.

Let’s turn to the DMND Charts Tab (2-years), below. The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see the cataclysm which was the accounting scandal. The stock fell from $92.47 on 9-20-2012 to now just over $20. Even more abrupt was the decline pattern itself – rather than a single day of catharsis and stock drop, it was several days of gaps down and new revelations making the prior day’s stories seem worse. It wasn’t pretty. The 52 wk range in stock price is [$16.15, $40.65], but of course, this is a two-year story (or longer).

The fact that DMND will be coming out with revised / restated financials is clearly seen as a positive to the stock price, but a risk elevator as well (read: vol is rising).

To get a better view of the vol, I’ve included the two-year IV30™ chart, below.



We can see how high the implied got during the accounting scandal, but what’s also interesting is the vol rise of late. A lot of that vol rise is the earnings announcement tomorrow – but a piece of it is the restated results coming out with it. The 52 wk range in IV30™ is [44.91%, 140%], putting the current level in the 46th percentile (annual).

But, this is a skew note – and the Skew Tab (below) is quite compelling.



I’ve excluded Nov (with earnings), and am focusing on months two and three. Most notable to me (and highlighted in the image above) is the massive vol diff that has opened up between the upside in Dec and Jan’13. While the ATM vol diff is ~10 vol points, the upside vol diff grows to well over 20 vol points. Some very wide markets in Jan’13 distort the image slightly, but the skew pattern is real. This is a fascinating vol discrepancy IMHO – one well worth examining.

Finally, let’s turn to the Options Tab.



Across the top we can see the monthly vols are priced to 233%, 89% and 79% for Nov, Dec and Jan’13. Of course, that Nov number is crazy high b/c of earnings due out while expiry is in three and a half trading days. Looking down the options montage and comparing Dec and Jan’13 upside, we can see that growing vol diff.

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