Tuesday, January 24, 2012

Dick's Sporting Goods (DKS) - Depressed Vol into Earnings, Stock Repurchase and Pre-announcement

DKS is trading $41.28, up 1.2% with IV30™ down 1.8% as of ~10:30am EST. The LIVEVOL® Pro Summary is below.


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Dick’s Sporting Goods, Inc. (Dick’s) is a sporting goods retailer offering a range of brand name sporting goods equipment, apparel, and footwear in a specialty store environment.

I noticed the stock today because of it’s depressed IV30™ -- that’s both relative to historical realized vol measures and to its own history. 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 recent pop on 1-12-2012 of 12.5%. The news was pretty simple – a $200 million stock repurchase plan which quelled the bad news that a warm winter would reduce EPS by one or two cents in EPS for the fourth quarter. My source for that news was MarketWatch via Yahoo! Finance, written by William Spain.

On the vol side we can see that the implied is depressed to both the long-term historical realized vol and the short-term. The caveat being that the HV20™ is elevated now b/c of that move on 1-12-2012 – so in a sense, it’s an artificial level right now. The vol comps are:

IV30™: 30.91%
HV20™: 47.24
HV180™: 43.74%

The second measure by which that IV30™ is depressed is simply the annual range. The 52 wk range is [27.25%, 65.11%], putting the current level at the 9th percentile (annual).

Let’s turn to the Skew tab.

We can see that all three months show a normal shape with Feb ATM depressed to Mar and Jun. The next earnings release for DKS should be in early Mar – that volatility event is priced into the options and has pushed Mar (and Jun) above Feb.

Let’s turn to the Options Tab to see month to month vols as a blended average.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see Feb is priced to 29.44% while Mar is priced to 33.78%. Looking back to the vol comps and the 52 wk range in IV30™, that Mar number is still pretty low. It is, however, worth noting that since DKS disclosed how earnings would look in Jan, that Mar report should (or could) possess few revelations. In English, whatever “uncertainty” would normally be embedded in the news release has in a sense has been reduced. That means the vol should be somewhat reduced – and in fact, it is.

This is trade analysis, not a recommendation.

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