Thursday, January 19, 2012

Tiffany & Co. (TIF) - Depressed Vol After Gap Down on Downward Guidance

TIF is trading $63.16, up 4.3% with IV30™ down 0.8%. The LIVEVOL® Pro Summary is below.


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Tiffany & Co. is a holding company and conducts all business through its subsidiary companies. The Company, through its subsidiaries, including Tiffany and Company (Tiffany), sells fine jewelry and other items that it manufactures or has been made by others.

This is another vol note -- depressed vol to be more specific, but in a stock that has recently had a sharp move down.

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).

In the stock portion I've highlighted the gap down on 1-9-2012 from $66.94 down to 59.94 or 10.5%. The news that preceded that move was lowered earnings guidance. Here's a snippet from a news story:

Jewelry retailer Tiffany & Co. said Tuesday that its sales growth weakened in the U.S. as shoppers pulled back on buying pricey baubles during the key holiday season.

The company known for its iconic turquoise box cut its yearly earnings guidance. Its shares fell more than 10 percent in morning trading.

Source: Associated Press via Yahoo! Finance -- Tiffany's US holiday sales growth weakens

On the vol side, I've highlighted the current vol comps. The implied is trading below both historical measures. It's important to note that the HV20™ is elevated now because of that stock move and it was 27.29% before the gap in stock. Still the implied is significantly depressed to the longer-term historical realized measure (HV180™) and the HV20™ is actually in line with that longer-term measure. The comps are:

IV30™: 32.37%
HV20™: 45.69%
HV180™: 46.67%

Let's turn to the Skew tab.

The Jan options show stickiness in the OTM calls and puts and thus the weird looking "V" shape. The second and third expiries show a more normal shape, with May elevated to Feb, likely because of an earnings event in late Mar.

Finally, let's turn to the Options Tab.

We can see that May vol is priced to 34.48% and Feb is priced to 32.31%. Both of those levels are below the HV measures. In English, the option market reflects less risk moving forward (even with an earnings announcement), then the stock has seen both in the last twenty trading days, and in the last 180 trading days. The last two earnings cycles for TIF have seen ~$5.50 moves in stock price in one day.

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This is trade analysis, not a recommendation.

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