Tuesday, November 29, 2011

Ivanhoe (IVN) - Elevated-Elevated Vol

IVN is trading $19.76, up 2.2% with IV30™ down 0.7% as of ~11:20am EST. The LIVEVOL® Pro Summary is included below.


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Ivanhoe Mines Ltd. (IVN) is an international mineral exploration and development company. The Company’s principal mineral resource property is the Oyu Tolgoi Project, located in Mongolia.

IVN showed up on two custom scans – high vol and calendar spread (months one to two). Tricky…

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).

Check out the vol trend over the last six months. IV30™ was ~39 six months ago – it climbed all the way to 116.82 on 11-23-2011, and is now sitting at 106.70. In English, the option market now reflects 273% of the risk that it did half a year ago. The stock price is ~$6 lower than it was six months ago (or 24% lower).

More specific to the vol comps right now, the historical realized vols (both long-term and short-term) are significantly depressed to the 30-day implied.

IV30™: 106.70
HV20: 66.43
HV180: 70.51

As the implied has been rising, the short-term historical realized has been dipping rather significantly, dropping from 126 on 10-18-2011 to now 66.43. Again, in English, the stock has moved with less volatility over the last 6 weeks as the implied has been rising.

Let’s turn to the Skew Tab to examine month-to-month and strike-to-strike vols.

We can see that the front month is elevated to the back for all strikes while the shape of the skew is similar across both expos. While the IV30™ is elevated at 106.70, the ATM vol in Dec is ~111.

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. I will say that we've got an interesting vol phenomenon here. Elevated vol using the hypothetical 30-day option along with elevated front month to back month vol. That makes the front month elevated-elevated vol.

The elevated vol reflects elevated risk. With IV30™ so clearly elevated to a dipping realized vol, this feels... weird... As a simple example, the Jan 11/29 strangle is valued at $0.85. Whoa... The 52 wk range in IVN is [$12.11, $30.03]. The fact that the 11/29 strangle is bid on both sides and worth nearly $1 reflects the possibility that the stock makes a new annual low (or high) within the next month and a half. That means a lot of risk to short gamma (and long vega if it’s one-sided).

This is trade analysis, not a recommendation.

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