Monday, January 23, 2012

Time Warner Cable (TWC) - Earnings Vol and Patterns

TWC is trading $69.21, up small with IV30™ up 10.6%. The LIVEVOL® Pro Summary is below.


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Time Warner Cable  Inc. is a cable operator in the United States with systems located in five geographic areas: New York State, the Carolinas, Ohio, Southern California and Texas.

TWC has earnings due out 1-26-2011 BMO. This is a vol note on some earnings tendencies which I found quite interesting. Before we dig deep, let's start with the easy stuff -- the Charts Tab (6 months). 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 near-term rally -- the stock has gone from $57.41 to over $69 as of this writing. That's more than 20% in less than two months. On the vol side, we can see that the implied is trading below the long-term historical realized vol but above the short-term HV. Specifically:

IV30™: 25.31%
HV™: 18.22%
HV180™: 30.45%

But, taken one step further, the level of IV30™ is more compelling. The 52 wk range in IV30™ is [19.30%, 48.34%]. That makes the current level just the 20th percentile (annual), yet earnings are approaching in a few days.

I've computed some earnings stats using Livevol® Excel (LVE). First, I have computed (below) the one day and two day stock changes (in $ and %) over the last seven earnings cycles).

Let's assume we employed a simple strategy -- hold the long straddle after earnings and sell it the next day if the stock moved 4% or more in absolute value. But, if the stock moved less than 4%, we held one more day. Using the raw data above, i computed a consolidated report, below.

For three of the last seven earnings reports we look to the stock change after two days -- those are denoted in yellow. The results show that on average the stock moved 5.0% (in absolute value).

Let's turn to the Options Tab as of this writing.

The ATM straddle in Feb is quoting $3.55 x 3.85 which is 5.34% of stock price mid-market. Keep in mind, a vol crush will ensue after earnings but there is still considerable time left in the Feb options after Jan 26th's earnings report.

This is trade analysis, not a recommendation.

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