Friday, April 1, 2011

EnerNOC (ENOC) - Calendar Spread to Own Earnings

ENOC is trading $19.05, down small with IV30™ down 1.3%. The LIVEVOL® Pro Summary is below.


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EnerNOC, Inc. (EnerNOC) is a provider of clean and intelligent energy solutions, which include demand response services, energy efficiency, or monitoring-based commissioning, services, energy procurement services and emissions tracking and trading support services.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

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.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

We can see how the front month is elevated to the back. One oddity -- the last earnings cycle was 2-16-2011, which would mean earnings are likely due out in mid May. This year, the May cycle ends on May 21st (the latest possible). Last year, earnings were 5-5-2010. So, it seems like the earnings month (with an embedded vol event) is cheaper (in terms of vol) than Apr. Hmm...

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

The stock has been headed down of late -- from as high as ~$31.50 before last earnings to now below $20.

On the vol side, IV30™ looks pretty fair(ish). Specifically:

IV30™: 68.43
HV20™: 74.29
HV180™: 50.73

But, note that Apr vol is actually 76.52. Given that Apr vol is well above May (with earnings), and is also above both the short-term and long-term realized vols, it's pretty clear that the option market reflects elevated risk in the near-term.

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

Potential Trades to Analyze
1. Calendar spread Apr/May:
a. Sell the Apr 20 strangle / purchase the May 20 strangle.
b. Do it one-sided: Just calls or just puts.

Both of these trades own the earnings vol for less than the front month. But, again, the elevated vol in Apr could reflect some embedded large news.  Just to be clear, the elevated Apr vol needs to be investigated further than I went in this post.

This is trade analysis, not a recommendation.

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