Tuesday, November 1, 2011

Jefferies Group (JEF) - Do We Know... Everything?

JEF is trading $12.47, down 6.0% with IV30™ spiking up 38.3% as of ~10:30am EST. The LIVEVOL® Pro Summary is below.


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Jefferies Group, Inc. and its subsidiaries operate as securities and investment banking firm.

The news driving the vol and stock is quite simply Europe and the suspected exposure the firm has to it. With the bankruptcy of MF Global, the public is looking for the next potential disaster. Here’s a snippet from a great article published by Bloomberg.

[JEF] fell as much as 14 percent today as investors renewed their focus on Europe’s financial crisis, prompting the investment bank to say it has “no meaningful exposure” to debt issued by Portugal, Italy, Ireland, Greece and Spain.


Jefferies, which arranged $325 million of bonds for MF Global in August, said yesterday it has less than $9 million of exposure to the failed firm’s debt securities.

Source: Jefferies Slides as Investors Focus on Impact of Europe’s Sovereign Debt, written by Laura Marcinek

Well, there you go. Let’s start by looking at the Charts Tab (6 mos) from Livevol® Pro. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see the abrupt stock drop from as high as $15.33 two days ago to now in the $12 range. On the vol side we can see that spike today, which is still below the realized movement of the last two days. Keep in mind that HV is calculated close-to-close, so the blue line will actually pop again tomorrow.

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

The skew has maintained its normal shape while the front is substantially elevated to the back. There is a bit of a kink in the Dec options on the 13 strike.

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

I wrote about this one for TheStreet.com (OptionProfits), so no specific trade analysis here. I will say that the risk here goes beyond the facts. Certainly, if JEF does end up having too much exposure to Europe, then a cataclysmic stock reaction is possible. Just as devastating in the near-term is if the market believes the firm has that exposure. One misstep here, one admittance to having “more” exposure than previously divulged could send the stock down 50% (or whatever).

Having said all of that, it’s that kind of risk that’s needed to see vol pop 40% in a day. It’s the remnants of the Bear Stearns and Lehman Brothers blow outs that poke at us as traders. This will be an interesting one to watch develop -- if it develops at all.

This is trade analysis, not a recommendation.

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