Monday, December 19, 2011

Patriot Coal (PCX) - Depressed Implied to Historical Vol; Depressed Implied to Implied

PCX is trading $8.57, down 3.7% with IV30™ down 2.0%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Patriot Coal Corporation and its subsidiaries (Patriot) is a producer of thermal coal in the eastern United States, with operations and coal reserves in the Appalachia and the Illinois Basin coal regions.

This is another vol note, but this time for depressed implied relative to the historical realized measures. I found PCX using a real-time custom scan that hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

The PCX 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 how the stock peaked in late Jul and then dropped off of earnings. That slide has continued for the last several months, and as of this writing, the stock is down ~65% from that re-earnings level.

On the vol side, this is a cool one where the implied tends to trade below the historical measures, unlike most of the stocks we've looked at lately. As of today the implied is down another 2%. The vol comps right now are:

IV30™: 73.74
HV20: 92.56
HV180: 89.06

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock.

Let's turn to the Skew Tab to examine the month-to-month and line-by-line vols.

We can see a couple of phenomena:

1. The Jan options are parabolic -- the upside and downside OTM options are priced to higher vol than the ATM.
2. The Feb ATM options are priced higher than Jan -- that is an earnings phenomenon as the last two years PCX has released earnings on 2-2-2010 and 2-1-2011.

Finally, let's look to the Options Tab (below).

Note that Feb is priced ~9 vol points higher than Jan while Mar is actually in line with Feb. In English, not only is Jan depressed to the recent historical realized levels, but also relative to the implied of Feb and Mar. Cool...

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

1 comment:

  1. I just purchased January options on this stock. I think we are do for a bounce back anyway in the markets overall, and this could one could get a quick pop.