Tuesday, March 20, 2012

Green Mountain Coffee (GMCR) - Depressed Vol in Gapping Stock as Earnings Approach

GMCR is trading $51.65, down small with IV30™ up 3.6% as of ~11:05am EST. The LIVEVOL® Pro Summary is below.


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Green Mountain Coffee Roasters, Inc. (GMCR) is engaged in the specialty coffee and coffee maker businesses.

This is a vol note on a stock that has a recent history of abrupt gaps and earnings moves. Let’s start with 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).

Starting with the stock portion, we can see the tendency for the stock to gap. Just six months ago this was a $110 stock. It’s down more than 50% since then. I’ve also highlighted the last two earnings cycles – a gap down and a gap up. More on that in a sec.

Looking to the vol side, we can see that of late the implied and short-term historical vols have found “quiet” periods. In fact, the current IV30™ is in the 4th percentile (annual). The 52 wk range in IV30™ is [40.40%, 135.37%]. The 52 wk range in stock price is [$34.06, $115.98].

The last two earnings cycles in the second calendar quarter have been on 4-28-2010 and 4-27-2011. It’s a reasonable bet to expect earnings to fall in the May expiry, but outside of Apr.

Let’s turn to the Skew Tab.

Focusing on the ATM vols, we can see that in fact May is priced above the Mar23 weeklies and the Apr monthlies – confirming circumstantial evidence of a vol event (earnings) in May. I do note the parabolic shape to the skew in the front expiries that is not there in the May options. As we approach May expiry, I would expect that skew to bend to parabolic – the OTM calls may become more expensive (with respect to vol).

Let’s turn to the Options Tab, for completeness.

I wrote about this one for TheStreet (OptionProfits), so no specific trade analysis here. Looking across the top we can see the vols per expiry are 53.69%, 46.42% and 58.10%, respectively for Mar23 (W), Apr and May monthlies.

Even though the May options are priced above the front two expiries, that 58 vol level still feels low(ish) given the earnings event although I do note, again, the tendency for GMCR to gap even without earnings news

This is trade analysis, not a recommendation.

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