Tuesday, February 7, 2012

Coinstar (CSTR) - Stock Explodes, Vol Implodes Off of Earnings -- Now What?

CSTR is trading $59.77, up 18.2% with IV30™ down 25.1%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Coinstar, Inc. (Coinstar) is a provider of automated retail solutions. Coinstar’s core offerings in automated retail include its digital video disk (DVD) business, where consumers can rent or purchase movies from self-service kiosks (DVD Services segment), and its Coin business, where consumers can convert their coin to cash or stored value products at coin-counting self-service kiosks (Coin Services segment).

The news that pushed CSTR stock up (and the vol down) is earnings and the acquisition of a competitor. Here’s a news snippet:

SAN FRANCISCO (MarketWatch) -- Shares of Coinstar Inc.jumped more than 16% to $58.90 on Tuesday morning after the company reported better-than-expected results for the fourth quarter and announced plans to buy the DVD-kiosk business from NCR Corp. -- removing a key competitor for Coinstar's Redbox service. The deal came after Coinstar announced a partnership with Verizon for a new digital streaming service

Source: MarketWatch via Yahoo! Finance – Coinstar shares jump on results, NCR deal, written by Dan Gallagher.


Well that seems pretty good… Like 18% up good news. Let’s turn to the Charts Tab (six months), below.

On the stock side, we can see how CSTR has now gapped in both of the last two earnings reports. Last time it was a 7.0% drop down. Today, it’s an 18% pop up.

On the vol side we can see the awesome drop in implied off of earnings – a perfectly normal and predictable phenomenon, but cool nonetheless. The implied is now trading right around the long-term historical realized vol (HV180™). Keep in mind that HV is calculated close-to-close, so that blue line (HV20™) will pop on tomorrow’s chart.

Let’s turn to the Skew Tab.

We can see that while the vol has imploded today, the front is still substantially elevated to the back months. It’s also nice to see that the front two expiries have an upside skew bend as well – so parabolic in totality. It’s possible that the upside skew may come down in the next few days (or hours) after the revelation of this earnings report is fully digested into the equity price.

Finally, let’s turn to the Options Tab, for completeness.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see that Feb is still priced to 53% vol, while Mar is down to 44%. Looking with a bit more care and a specific example, we can see the Feb 57.5 puts are priced to 53.48% while those same puts in Mar are priced to 43.82%. In dollar terms, the Feb 57.5 puts are priced to half of the value of the mar 57.5 puts.

Let’s keep in mind:
Mar puts

= Feb puts + the rest of mar expo not in Feb.
= ~2 weeks + 4 weeks

Of course, that premium for the next two weeks is largely concentrated in the next few hours -- i.e. the trade day. It will be interesting to see where the vol goes in Feb in the next day or so. For that matter, it will be interesting to see where the stock goes as well.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment