Monday, September 12, 2011

Deutsche Bank (DB) - Option Market Reflects Tripling Risk in EU's Best Economy. "Uh Oh? Or Vol Sale?"

DB is trading $28.98, down 6.9% with IV30™ up 0.8%. The LIVEVOL® Pro Summary is below.


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Deutsche Bank AG is a global investment bank. The Company offers a variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world.

I wrote about The MSCI Germany Index (EWG) on Friday. You can read that post here: MSCI Germany Index (EWG) - New Lows, Vol Doubles, What's a Lehman Brothers?

As of this writing EWG is trading $17.46, with IV30™ up to 60.18. Both of those are new annual extrema. I've included the summary and a snippet of the Stats Tab, below.

We can see that the levels today represent a new 52 wk low in price and 52 wk high in IV30™.

Moving back to DB, I've included the same snippet of the Stats Tab, below.

Let's turn to the Chats Tab and examine the history of DB vol and price evolution. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

Starting with the stock portion, we can see how the price flat lined for several months which pushed the HV20 to as low as 19.74. Since the end of July, the stock has been catapulting lower, falling from $55.55 on 7-26-2011 to now $28.98, or 48%.

On the vol side, we can see the IV30™ shooting passed the HV20, which itself is 253% higher than the annual low. With IV30™ at 95.34, it's 251% above it's annual low of a few months ago.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

The skew itself has maintained a "normal" shape with the downside puts bid relative to the upside calls. The front is elevated to the back (we're in expo week), and the second month is elevated to the third.

Let's look to the Options Tab and note some of the price sin the downside puts.

What caught me eye is the Oct 17.5 puts. Those are priced at 126 vol. Keep in mind, DB traded at 19.74 HV a few months ago. The lowest strike puts that were bid in the second month on that day (4-14-2011) were priced at 43.96 vol. Say that out loud... 44 vol is now 126 vol in the catastrophe puts. The option market is reflecting substantially elevated risk in this company, in this country, and it's the most industrialized and advanced economy in the EU. I guess the question to ask: Is this "Uh, oh..." Or... "a vol sale?"

This is trade analysis, not a recommendation.

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