Thursday, December 15, 2011

MBIA (MBI) - Morgan Stanley Settles, Elevated Risk Deflates as Stock Rise Holds... For Now...

MBI is trading $12.27, up 2.1% with IV30™ down 3.1%. The LIVEVOL® Pro Summary is below.


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MBIA Inc. (MBIA) together with its subsidiaries, operates the financial guarantee insurance business. MBIA is a provider of asset management and other advisory services.

I last wrote about MBI on 12-9-2011. You can read that article here:
MBIA (MBI) - Vol Remains Elevated After 50% Gain

The takeaway there was simply that MBI stock has spiked on news of troubled competitors as well as S&P re-affirmed investment grade ratings. Yesterday, more news came out. Here’s a snippet from a great Reuters article written by Lauren Tara LaCapra.

Morgan Stanley agreed to give up insurance claims against MBIA Inc in exchange for a $1.1 billion payment from the ailing insurer, ending a two-year legal fight over guarantees on mortgage bonds.


MBIA's bets on CDS started souring as the financial crisis ramped up, leading the company to split itself into two parts: a municipal guarantee business and a structured finance unit. MBIA announced the restructuring in 2009 after receiving approval from state insurance regulators.


A group of 18 banks, including Morgan Stanley, objected to the restructuring in court, arguing that it might leave the insurer unable to pay out its structured finance obligations.


All but five banks have settled with MBIA, including HSBC Holdings PLC (LSE:HSBA.L), Royal Bank of Scotland PLC (LSE:RBS.L) and Wells Fargo & Co (NYSE:WFC). Those still pursuing claims include Bank of America Corp (NYSE:BAC) and UBS AG (VTX:UBSN.VX).
Source: Morgan Stanley settles with MBIA, sets $1.8 billion charge, via Yahoo! Finance.

Let’s look to 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).

We can see the awesome stock jump based on the various news items (above). We can also see that the implied tends to trade above the realized vol. It’s interesting to see the implied now falling from the recent highs as the news stays consistently positive – the stock jump may be more “permanent.” Ya know, or not…

Let’s turn to the Skew Tab, below.

I’ve excluded the Dec expiry to focus on the longer expos. Note the monotonic vol decrease from the front to the back. It’s this vol phenomenon that caught my attention.

Finally, 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 it's interesting to ask yourself if ultimately you're a buyer of this news – that MBI isn’t going away and in fact may be recovering from the catastrophe that was the last two years. Either way, the vol diff between Jan and Feb is interesting.

This is trade analysis, not a recommendation.

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