Wednesday, November 16, 2011

NovaGold Resources (NG) - Entity Value up 25% on Restructure; Vol Still Elevated

NG is trading $11.22, up 27.4% with IV30™ up 1.7%. The LIVEVOL® Pro Summary is below.


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NovaGold Resources Inc. (NovaGold) is a precious metals company engaged in the exploration and development of mineral properties situated principally in Alaska, the United States of America and British Columbia, Canada.

The stock is up on restructuring news that ranges from a CEO change to a spin-out. Here are some snippets out of an article from Marketwire.

Senior Management Changes

Gregory A. Lang has accepted the position of President and Chief Executive Officer of NovaGold effective January 2012. Mr. Lang comes to NovaGold from Barrick Gold Corporation ("Barrick Gold") where most recently he was President of Barrick Gold of North America, Barrick Gold's wholly-owned subsidiary.

Spin-out of Ambler to Shareholders of NovaGold

Rick Van Nieuwenhuyse, NovaGold's Founder, will step down from his current position as President and Chief Executive Officer of the Company and will assume the position of President and Chief Executive Officer of NovaCopper Inc. ("NovaCopper"), a newly formed subsidiary. It is proposed that the shares of NovaCopper will be distributed to shareholders of NovaGold as a return of capital by way of a Plan of Arrangement (the "Plan") under the Companies Act (Nova Scotia).

Maximization of Value of 50%-owned Galore Creek Project

In addition to the spin-out of NovaCopper, the Board of NovaGold has re-iterated its objective to unlock the value of NovaGold's copper assets in order to focus on the Company's flagship Donlin Gold project (please refer to the Press Release dated July 28, 2011). To that end, the Board of NovaGold has decided to explore opportunities to sell all or part of NovaGold's 50% share of the Galore Creek project ("Galore Creek") located in northwestern British Columbia.

Thomas S. Kaplan Becomes Chairman of the Board and Gil Leathley Joins the Board

NovaGold further announced that Dr. Thomas S. Kaplan has joined the Board of Directors of the Company and has been appointed Chairman of the Board and Mr. Gil Leathley has joined its Board of Directors. Both appointments are effective immediately.
Source: Marketwire: NovaGold Announces Major Changes to Its Organization

Aren't stock prices great... we can summarize all that as, up 27.4% in entity value.

The company has traded 29,463 contracts on total daily average option volume of just 9,896. Calls have traded on a 4.1:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action -- sort of rapid fire all over the place. The Jan'12 10 calls show the most volume, substantially purchases as I can tell. The Jan'12 vol is up 3.9 points which is the confirming circumstantial evidence of purchases.

The Skew Tab snap (below) illustrates the vols by strike by month.

The skew has retained its shape across the front three expirations. A monotonic increase in vol as we move to the front persists as well. The next earnings release is likely in Feb and the option markets reflect that reality (i.e. neither Dec nor Jan are elevated).

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

Here's where it gets interesting (yeah, I waited this long to get to the punchline... my bad)... While the stock is popping up, the vol has been and remains substantially elevated to the historical realized measures. One caveat is that HV is calculated close-to-close, so the HV20 will show a spike tomorrow. It certainly appears that the elevated vol up to now was win fact indicative of risk. As of right now (before the HV20 calc resets):

IV30™: 78.30
HV20: 60.80
HV180: 56.97

It's interesting that the vol has remained elevated -- like the risk that was reflected in the options was not surrounding a potential announcement about restructuring, but something... else...

Possible Trades to Analyze
Without getting really specific, just check out that OTM vol in Dec. Keep in mind NG closed at $8.81 yesterday. One of many things that jumped out at me as a cool position to analyze -- the Dec 10/9 1x2 ps for a credit. 

This is trade analysis, not a recommendation.

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