Wednesday, November 9, 2011

Waste Management (WM) - Elevated Vol, Calendar Spread, Popping Vol and Correlation Divergence

WM is trading $31.28, down 1.2% with IV30™ up 11.1% as of ~10:40am EST. The LIVEVOL® Pro Summary is included below.


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The Company is a provider of waste management services in North America. Its subsidiaries provide collection, transfer, recycling and disposal services. The Company is also a developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States.

I found WM on three scans today:
(1) Day vol gainers
(2) Elevated vol to historical
(3) Calendar Spread (month 1 to month 2)

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).

On the stock side we can see the abrupt move down from ~$35 to as low as $27.75 on 8-9-2011. The gap down started with an earnings miss. Here’s that news:

Shares of Waste Management Inc. fell 5% Thursday after the company announced its second-quarter earnings and missed analysts expectations. Profit was down to $237 million, or 50 cents a share, compared with $246 million, or 51 cents a year ago. Revenue rose 6% from a year ago to $3.35 billion, however operating expenses climbed 7.2%.
Source: MarketWatch -- Waste Management shares drop after earnings miss, written by Austen Sherman (

The stock continued its drop after earnings, but that was more of a market correlation phenomenon. I’ve included the 6 month chart of WM (red) vs SPY (yellow).

The first highlighted area is that stock move down for WM – we can see how strongly correlated to SPY it was. The second highlighted area has been the recent stock movement (down). Note with this second part of the chart how WM now diverges from SPY. Or, in English, as SPY has gone up, WM has gone down. Tricky…

Let’s focus now on the vol portion of WM – I’ve included an enlarged image of just the vol for the same six months. Again, the legend is IV30™- red vs HV20 - blue vs HV180 – pink,

The point here is that the implied is elevated to the historical measures. Secondarily note that the IV30™ has been substantially higher – namely during that stock drop period in late Jul and early Aug.

Let’s now turn to the Skew Tab.

The focus here is the vol diff between the Nov and Dec options. I’ve highlighted the downside, but the upside has that same vol diff. So now we can see the three vol phenomena in play that were listed above. This last one being the calendar diff.

Let’s turn to the Options Tab for completeness.

I wrote about this one for (OptionsProfits), so no specific trade analysis here. I will say that the elevated vol in Nov looks interesting along with a possible cover in Dec. Having said that, strategies which reduce the net premium even further might also be worth examining.

This is trade analysis, not a recommendation.

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1 comment:

  1. There are positive things to this report. I think we can all see that we are improving in many areas. We just need to teach our children more about what they need to do to have great waste removal. If we do that, people will see the importance of this.