Friday, April 27, 2012

NutriSystem (NTRI) - Earnings Approach, Vol Splits

NTRI closed on Thursday at $11.31, up 1.3% with IV30™ up 2.2%. The LIVEVOL® Pro Summary is below.


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Nutrisystem, Inc. is a provider of a weight management system based on a low-calorie, portion-controlled, prepared meal program.

This is a vol note surrounding an approaching earnings date on 5-1-2012 AMC. Before we get into the charts and vol, let’s first look at the some earnings history – specifically, the last four quarters.

We can see for the last four quarters, NTRI has averaged an absolute 8.4% stock move with a median of 8.04%. OK, good to know. 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).

In the stock portion, I’ve highlighted the last two earnings moves, both down. The prior two moves (see table above) were up. On the vol side, at first glance we see that the implied is trading below the long-term historical realized vol (HV180™) but above the short-term historical realized vol (HV20™). Note how the Hv20™ has moved – it popped off of the earnings move, and once that day rolled off the average, it dropped right back down to where it was prior. The current HV20™ is 31.85% -- so quite a discount to the implied and the HV180™ which is 49.38%.

I would expect the implied to be trading above both of the historical realized measures this close to earnings, and still expect it to rise into the 50% range over the next few trading days. The 52 wk range in IV30™ is [32.65%, 78.54%],putting the current level is just the 28th percentile (annual).

The IV30™ over the last five earnings cycles has been 64.62%, 65.43%, 78.54% and 56.74% respectively, from 4-27-2011 through 3-5-2012. For context, recall that the IV30™ right now is just 45.69%.

Let’s turn to the Skew Tab to examine the vols month-to-month and line-by-line.

We can see how the front month vol is elevated to the back – a perfectly normal and expected behavior as earnings approach. We can also see that vol diff for the ATM options – on the 11 strike.

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 broadly speaking, that there’s an eight point vol diff between May and Jun. The ATM vol in Jun is ~40% (keep in mind there’s likely a dividend in there as well). The May 11 straddle is priced at $1.15, or 10.175 of the stock price – which is in fact slightly above the average move over the last four cycles. The Jun vol of ~40% would be in the 16th percentile for IV30™.

This is trade analysis, not a recommendation.

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