Tuesday, December 6, 2011

Interoil (IOC) - Elevated Vol

IOC is trading $53.16, down 1.9% with IV30™ up 10.7%. The LIVEVOL® Pro Summary is included below.


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InterOil Corporation (InterOil) is an integrated energy company operating in Papua New Guinea and its surrounding region.

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

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

We can see the implied is spiking toward 150 and is more than 50% above the historical realized vol measures.

IV30™: 149.42
HV20: 95.57
HV180: 76.79

The last time IOC IV30™ spiked it was in response to a dramatic stock drop. On 9-19-2011 the stock closed at $63.22 with IV30™ at 70.25. By 10-4-2011 the stock was trading $34.05 (down 46%) with IV30™ at 161.86 (up 130%). That implied level is the annual high, though the options are getting close to that level again -- this time there has been static stock movement.

As a comparison, on 10-4-2011 the HV10 was 175.06. Today the HV10 is 115.11. The option markets reflect substantial risk.

Let's turn to the Skew Tab, below.

We can see a couple of phenomena:

1. The front two month ATM vols are abut the same while the Mar options are substantially depressed to those levels.

2. The front month options reflect a parabolic skew, unlike the back two months.

Let's look to the Options Tab (below).

Though not shown here, the Dec 25 puts are $0.05 bid, while the Dec 95 calls are $0.17 bid. That's a $70 strike difference bid in the options that expire in ten calendar days.

The Jan 17.5 puts are $0.10 bid and the Jan 120 calls are $0.90 bid. That's 102.5 spread in strikes and it's $1.00 bid. Whoa!!!

To say the options reflect risk would be... true...

This is trade analysis, not a recommendation.

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