Thursday, January 19, 2012

Nabors Limited (NBR) - Depressed Vol, Time Decay and Earnings

NBR is trading $17.13, down 0.9% with IV30™ down 11.0%. The LIVEVOL® Pro Summary is below.


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Nabors Industries Ltd. (Nabors) is a land drilling contractor and a land well-servicing and workover contractor in the United States and Canada.

I found this stock using a real-time custom scan that hunts for low vols. Add an earnings event after Feb expo, and we’ve got an interesting vol story.

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 NBR 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 that the implied has been dipping on essentially a straight line since October. The 52 wk range in IV30™ is [34.21%, 86.90%], and that high was reached on 10-24-2011. The vol comps as of this writing are:

IV30™: 47.43%
HV20: 61.94%
HV180: 62.56%

The current IV30™ places it in the 25th percentile to its own annual history. Looking to the company website, it looks like the next earnings date is actually just after Feb expiry. Let’s turn to the Skew Tab to examine the month-to-month vols.

We can see that Feb and Mar have almost identical shapes, but Mar vol is slightly elevated to Feb – that’s the earnings event reflected in the options.

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

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see the monthly vols for Feb and Mar, respectively, are 47.365 and 49.64%. Looking back to the vol comps above, that Mar level is still depressed to both historical measures. While the Mar vol will almost certainly rise as earnings approach (barring a pre-announcement or takeover or something weird), the options will also decay. That is, there’s a full month before earnings are announced, so the theta will eat at option value.

This is trade analysis, not a recommendation.

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  1. Could you please explain the numbers you took for the custom scan, like the min -40 and max - 8, for the IV30-HV20, respectively. You can theorethically get a more depressed IV relativ to HV with the custom scan, which would be better, right.

    1. I put the -40 simply as a data integrity check. Anything more than that is probably some weird non standard option falling into the standard option bucket, or something. Having said that, yes, I could leave it unbounded and just do a sanity check myself (which of course I do anyway).

  2. But increase in iv should offset theta decay in march options. Going long on vol with march options can be a good trade I think