Tuesday, August 2, 2011

MetroPCS (PCS) - Stock Collapses on Earnings; Vol Doesn't

PCS is trading $10.97, down 32.2% with IV30™ unched. The LIVEVOL® Pro Summary is below.


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MetroPCS Communications, Inc. (MetroPCS Communications) is a wireless telecommunications provider in the United States measured by the number of subscribers served.

The news today is pretty simple -- earnings were really bad. Here's a quick snippet of the results.

NEW YORK (CNNMoney) -- MetroPCS Communications suffered a dramatic stock plunge on Tuesday after the wireless provider issued an earnings report that fell short of expectations.

The share price for MetroPCS (PCS) plummeted more than 30% after the company missed Wall Street forecasts for its sales, earnings and subscriber growth.

MetroPCS said its net earnings were 23 cents per share in the second quarter, below the Thomson Reuters consensus analyst forecast of 29 cents.
Source: MetroPCS stock plunges 30% as sales slow, written by Aaron Smith @CNNMoney Tech.

The company has traded over 17,000 contracts on total daily average option volume of just 995. Calls have traded on a 1.3:1 ratio to puts, though the daily average is 1.9:1. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action -- sort of all over the place with the Aug 12 calls and Aug 11 puts showing the most action, both on small OI relative to the trade volume.

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see the vol in Aug has remained elevated to Sep even after the earnings release. A 32% drop in one day will do that. The month-to-month vol diff has closed by about 50% today, but it's still eight vol points wide.

Finally, the Charts Tab (12 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

It's interesting how high the vol got into earnings -- looks like an annual high. At the same time, the short-term realized vol dropped as the stock sort of stood still approaching the report. Note that HV is calculated close-to-close, so that blue line will spike in toorrow's chart.

Possible Trades to Analyze
This is an interesting one. That vol diff month-to-month is pricing the front gamma quite high, but for good reason. With the stock losing 1/3 of it's value in a few hours, the possibility of a rebound or a further decline seems reasonable to expect.

The real question is, what are the odds that the stock stays put? The argument that vol is too high in the front is easy -- they just had earnigs, the news is out. But the argument that vol is too low is just as easily made -- wherever stock goes from here, this isn't a stable equilibrium... Who knows?.... I tried the "vol is too low" bet with JCP and got my face ripped off (figuratively). But, that was JCP...

This is trade analysis, not a recommendation.

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