Tuesday, January 31, 2012

RadioShack (RSH) - Stock Tumbles, Vol Explodes on Pre-announcement

RSH is trading $7.27, down 28.9% with IV30™ popping 52.3%. The LIVEVOL® Pro Summary is below.


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RadioShack Corporation (RadioShack) is engaged in the retail sale of consumer electronics goods and services through its RadioShack store chain.

The stock is down substantially on a pre-announcement which obviously wasn’t very good news. Here’s a quick snippet to summarize the report:

RadioShack Corp. shares plummeted 29 percent morning trading. The company announced it beat fourth quarter revenue expectations, but will miss profit estimates due to selling smartphones at lower prices. The Shack explained, “The Company’s results for the fourth quarter are due in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models.” CEO Jim Gooch said the company is moving towards more profitable sales from Verizon and AT&T .

Source: WALL ST. CHEAT SHEET via Yahoo! Finance -- 12 Super Hot Stocks: RadioShack Drops 30%, Mattel Pops 5% and Pfizer Holds Steady, written by Eric McWhinnie.


Let’s look to the Charts Tab (six 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 that single data point down to the $7 level on the news today. On the vol side, we can see the 50% pop in the implied. What’s interesting here is that while the news was unexpected, it’s now out. Normally. No matter what the news on earnings (i.e. good or bad), the vol dips as the event is over and digested in the underlying. It’s that elevated vol that caught my attention.

Let’s turn to the Skew Tab.

We can the front is elevated while the skew shapes are all similar. According to the RSH investor relations website, the next actual earnings report is due out on 2-21-2012, which is after Feb expiry and in Mar. Tricky…

Finally, let’s turn to the Options Tab.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see the vols across the top per expiry: 73.45%, 63.70% and 57.92% for Feb, Mar and Apr, respectively. Again, earnings are in the Mar expiry. The 52 wk range in IV30™ [31.30%, 72.91%], so the level today is fast approaching the annual high – it’s in the 86th percentile. The Feb sigma is actually above the annual high in IV30™.

This is trade analysis, not a recommendation.

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