Thursday, April 26, 2012

H&R Block (HRB) - Shares Fall on News; Vol Move Yields Noteworthy Phenomenon

HRB is trading $14.62, down 12.7% with IV30™up 54.2% as of ~10:40am EST. The LIVEVOL® Pro Summary is below.


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H&R Block, Inc. (H&R Block) is a tax service provider. H&R Block has subsidiaries that provide tax, banking and business and consulting services.

The news driving the stock today surrounds a reorg, layoffs and office closings. I’ve included a snippet from the news below:

H&R Block (HRB) notified the market of an impending shakeup late Wednesday, and investors promptly dumped the company’s shares, sending the stock down 16% in trading after the close.

The tax prep company said it will cut 350 positions and close 2o0 offices as part of an effort to save $85 million to $100 million a year.

The company also announced management changes. The president of retail tax services resigned and HRB said it is looking for a new CFO to replace Jeff Brown.

Source: Barron’s via Yahoo! Finance, H&R Block Cutting Jobs, Offices; Shares Plunge written by Avi Salzman.

The market certainly doesn’t like the news but a bit of a vol story has developed because of this move and I want to explore it. Let’s turn to 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).

On the stock side it’s pretty simple – the underlying has gapped down today to near the six month closing low of $14.41. On the vol side, we can see the gap up. The 52 wk range in IV30™ is [19.50%, 62.54%], putting the current level in the 47th percentile (annual). I do make note of how depressed the HV20™ at 18.78% is relative to the implied (though that number does not include the move today).

Let’s turn to the Skew Tab.

At first blush all seems kinda normal. Certainly, the shape of the skew shows no kinks and the vol rises to the OTM puts as expected. HRB earnings are usually in Mar, Jun (late), Sep and Dec. So, that Jul vol in fact has an earnings date embedded and it will be the first planned earnings announcement after the news today.

Let’s turn to the Options Tab to look at some actual numbers.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see across the top the vols of 40.94%, 41.30% and 39.43% for May, Jun and Jul, respectively. For the last two years, earnings have fallen on Jun 23rd and 24th – so after the Jun option cycle (but inside Jul). Noting that the current IV30™, though elevated today, is still pretty “middle of the road” and that Jul with earnings (the first after this news) is priced below the IV30™, that makes for a noteworthy vol phenomenon.

This is trade analysis, not a recommendation.

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