Thursday, August 26, 2010

CVB Financial (CVBF) - A Trader's Odds of the Company Going to Zero

CVBF is trading $6.81, down another 5.3% with IV30™ spiking up 40.5%. The LIVEVOL™ Pro Summary is below.

On 8-10-2010, Business Wire released this news:
CVB Financial Corp. (NASDAQ: CVBF - News) and its subsidiary, Citizens Business Bank, announced today it reported in its recent 10Q filing on August 9, 2010 that it received a subpoena from the Los Angeles office of the Securities and Exchange Commission. The subpoena and the SEC’s corresponding investigation are non-public, which means that the information CVB Financial Corp. provides to the SEC will not be publicized.

The stock gapped down 25% (ish).

Since then there has been a bunch of this news:
... investigations into possible breaches of fiduciary duty and other violations of the law by certain officers and directors.

Today the company has traded over 42,000 options on total daily average option volume of just 730. All but 215 contracts have been puts for nearly 200:1 put:call ratio. The largest trade was a 35,000 lot purchase of the Oct 5 puts for $0.40 with no stock. Color provided by Darren Story of Student Options on the floor. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the puts are entirely opening (compare OI to trade size).

We can also see that vol has jumped 36 points in Sep and 28 points in Oct (See the top of the Options Tab above).

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the stock's gap down on the first news and the climb in IV30™ today. The options are trading like there is a non trivial probability that this company may actually go away. The Oct 2.5 puts are dime bid, call it fair value at $0.15.

One VERY rough probability measure we make on the floor of bankruptcy as priced by the options is to look at the lowest strike calls, and see the payoff to cost ratio. In this case, if CVBF actually goes to $0, then those puts make $2.35 to a $0.15 bet. In other words, there is ~ 1:16 shot this thing goes bankrupt by October.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Any good volatility play imaginable here? Or just directional bets?

  2. Nah, I'd sit this one out. This is just good to watch and to remember next time a similar situation comes up in a different company.