Tuesday, October 18, 2011

China Life Insurance (LFC) - Volatile Volatility

LFC is trading $36.29, down 5.5% with IV30™ up 12.1% as of ~11:30am EST. The LIVEVOL® Pro Summary is below.


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China Life Insurance Company Limited is an insurance company. The Company operates its businesses through individual insurance business, group insurance business and short term insurance business, which provides individual life insurance, group life insurance, casualty insurance and health insurance products and services, such as financing insurance, children's insurance, endowment insurance and protection insurance, among others.

LFC showed up on a custom scan I use to find rising vols on the day – with IV30™ up over 12%, LFC is near the top of the list. Let’s start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™- red vs HV20 - blue vs HV180 - pink).

From the top portion we can see the stock was trading over $57 about six months ago and now is in the mid thirties. It’s unbelievable to not that this stock was trading at a low twenty IV30™ for several months and that implied was actually above the short-term historical realized vol for the same period. In English, this stock was moving at about fifteen vol for several months. Yeah, fifteen vol in China...

Starting in early August the stock started moving with several times that vol, hitting as high as ~64 in HV20. The IV30™ has hit as high as 61. As of today, the vol difference between the implied and the two historical measures has opened up fairly significantly. Specifically:

IV30™: 51.08
HV20: 40.79
HV180: 32.46

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

The skew has a normal shape, pretty really. The second month is elevated to the third likely due to an earnings release due out in the Nov expiration (I think).

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

I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, I will say that ultimately selling elevated vol is a reasonable position to examine, understanding the risks that elevated vol reflects. But, given the incredible vol increase from just six months ago in LFC and the ocean of opaqueness coming from China, this one feels kind of... icky... No?...

This is trade analysis, not a recommendation.

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