Friday, April 13, 2012

Barnes & Noble (BKS) - Upside Skew Difference Opens; Stock Down Hard, Vol Popping

BKS is trading $10.57, down 3.7% with IV30™ up 7.9%. The LIVEVOL® Pro Summary is below.


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Barnes & Noble, Inc. (Barnes & Noble) is a bookseller. The Company is a content, commerce and technology company that provides customers access to books, magazines, newspapers and other content across its multi-channel distribution platform.

This is a vol note focused primarily on an upside skew vol difference that has opened up in the recent few weeks along with a stock drop and implied rise. Let's start with the Skew Tab for today.

While Apr vol lies on top of May entirely, we can see that it's the upside skew that shows the greatest difference. The BKS Apr 13 calls are sorta irrelevant in this skew chart as they are $0.05 options, but the Apr 11 calls, and to some degree the Apr 12 calls, do have that significant vol diff and caught my attention. The next earnings release for BKS should be in Jun, so it's likely not in play here.

I looked back a few weeks ago, early on into this expiry cycle, and found that the vol difference was smaller though slightly apparent. I've included the Skew Tab from 3-19-2012, below.

Not only can we see a tighter vol difference, but note that the stock was trading much higher (the $20+ calls were bid).

Let's turn to the Charts Tab (six months) below, for a more holistic view of the stock and vol movement. 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 a highly volatile price evolution with gaps up and down. Ultimately, the solvency of BKS is in play (IMHO), though I absolutely love the bricks and mortar book store. We can also see the recent down draft, which is getting into the scary realm. The stock was trading $14.39 on 3-26-2012 and is now down to $10.57 as of this writing. That's a 26.5% drop in about three weeks. The 52 wk range in the underlying is [$8.45, $21.06], so the the price is getting close to that annual low.

On the vol side we can see that the implied has been substantially higher in the recent past. In fact, it reached 112.73% on 2-14-2012 (an annual high). After dropping to 53.33% on 4-5-2012, it has now risen to 72.53%. That's a 36% rise in eight calendar days as the stock has been dropping.

One final note, the e-book pricing collusion charge against AAPL may have an effect on BKS -- at least on a systematic level if not firm-specific. The BKS e-reader is kinda one of their biggest (last?) hopes for an earnings thrust forward away from... well, away from bad things...

This is trade analysis, not a recommendation.

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