Wednesday, October 5, 2011

Northern OIL (NOG) - Depressed Earnings Vol on Earnings Mover

NOG is trading $20.21, down 2.6% with IV30™ up 2,6% as of ~11:15am EST. The LIVEVOL® Pro Summary is below.


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Northern Oil and Gas, Inc. (Northern) is an independent energy company engaged in the acquisition, exploration, exploitation and development of crude oil and natural gas properties.

The Oil and Gas equity world has been on a bit of a roller coaster of late, with rising vol and increased realized stock movement. NOG poses an interesting opportunity through a calendar spread with a twist – earnings are due out in the Nov expo cycle.

Let’s start with the Charts Tab to get a feel for the recent stock and vol movement before we look to the term structure. The top portion is the stock price, the bottom is the vol (IV30™- red vs HV20 - blue vs HV180 - pink).

The one phenomenon that stands out to me is that gap in HV20 – which, of course, simply reflects a gap in the stock price. Here is the stock price evolution over a three day period in August:

8-5-2011: $18.16
8-8-2011: $13.25
8-9-2011: $18.52

That 40% pop was off of the earnings release – keep that in mind… Let’s turn to the Skew Tab to examine month-to-month and line-by-line vols.

The last two earnings cycles for NOG at this time of year were 10-26-2009 and 11-8-2010. The prior earnings release in 2010 was 8-9-2010 and this year they released on that same date (8-9-2011). In English, it’s a reasonable bet that the next earnings release will be in the Nov options cycle and outside of the Oct cycle. Given the massive movement from earnings in the Aug 2011 earnings release, owning that vol while funding it with a sale of elevated vol in Oct, seems... interesting?...

Let’s turn to the Options Tab for completeness.

I wrote about this one for (OptionsProfits), so no specific trade analysis here. But, owning that Nov vega with a sale of Oct, seems interesting. The biggest risk IMO is the short gamma in Oct -- meaning perhaps OTM or diagonal calendars are one way to examine this vol phenomenon while addressing the gamma risk.

This is trade analysis, not a recommendation.

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