Wednesday, April 25, 2012

Monster Beverage Company (MNST) - Earnings Approach, Where Will Vol Go?

MNST is trading $63.44, up 0.9% with IV30™ down 1.9% as of ~ 11am EST. The LIVEVOL® Pro Summary is below.


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Monster Beverage Corporation, formerly Hansen Natural Corporation, is a holding company. The Company develops, markets, sells and distributes alternative beverage.

This is a vol note with earnings approaching. 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).

On the stock side we can see the price evolution of late – which has been essentially straight up. Six months ago this was a $42.23 stock. Today it’s trading at $63.44, or up 50.22%. Nice…

On the vol side, I’ve circled the implied right before the last two earnings cycles, as well as the level today. The next earnings date for MNST should be about the first week of May – so we still have some time, but it’s interesting to see where vol might go in the next ten calendar days (or so). To get a closer look, I’ve included just the vol chart for the last three earnings cycles, below.

We can see the dip today as well as the levels for the prior three quarters. The 52 wk range in IV30™ is [24.64%, 64.71%], putting the current level in just the 36th percentile. But, the analysis gets a bit more interesting when looking to the Skew Tab, below.

As expected, the front month (with earnings) is elevated to the back – and quite substantially so. Recalling that IV30™ is a weighted average of two expiries, that means that the front month is above the current IV30™ and the back is below. So what? Let’s look to the Options Tab for that answer.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Across the top we can see May is priced to 42.47%, while Jun is priced to 34.35%. Looking back to that vol chart, the last three earnings cycles showed IV30™ of 55.44%, 56.32% and 43.89% for 8-2011, 11-2011 and 2-2012, respectively (month-year notation). As we all know, vol has dropped rather significantly over the last few months and that’s echoed even in this specific name as earnings vol dropped from the mid 50’s to the low 40’s. It's a fair question to ask where vol will go on the day before earnings and equally interesting, where should that second month vol go?

This is trade analysis, not a recommendation.

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