Tuesday, April 17, 2012

Terex (TEX) - Oddity in Earnings Vol; Whenever it Occurs

TEX is trading $23.60, up 6.3% with IV30™ down 3.3% as of ~12pm EST. The LIVEVOL® Pro Summary is below.


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Terex Corporation (Terex) is a diversified global equipment manufacturer of a variety of machinery products. Terex is focused on delivering customer-driven solutions for a range of commercial applications, including the construction, infrastructure, quarrying, mining, shipping, transportation, refining, energy and utility industries.

This is a vol note as earnings approach on an ambiguous date. The end result is an interesting vol level if either of two realistic opportunities arise. 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 an abrupt move up over the last few months. On 12-28-2011 the stock closed at $12.63. As of this writing, the stock is up 86.9% since then. Most of that move came from late Dec to mid Feb – check out that straight line up. Since then, there has been a bit of an equilibrium found, or in English, some sideways trading.

On the vol side, we can see how the implied has been higher, substantially so, over the last six months. The 52 wk range in IV30™ is [33.11%, 98.13%], putting the current level in the 38th percentile. The last two earnings cycles for TEX in calendar Q2 have been 4-21-2010 and 4-20-2011. That makes for difficult timing as Apr expiry is 4-20-2012.

Let’s turn to the Skew Tab.

We can see that Apr is well elevated to May across all of the strikes. This is sort of circumstantial evidence that earnings are due out before expiry. Looking to the firm’s IR site, I see this disclaimer: “There are currently no events scheduled.” Umm, I think there should be pretty soon, no?...

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 that Apr is priced to 65.53% vol, while May is priced to 58.15%. What’s interesting about these levels is that they both feel low. If earnings were in Apr, then the remaining week is essentially a pure earnings play, in which case vol would be substantially higher. If we consider the day of earnings just twice as “risky” as a “normal day,” we would expect vol in the 100% range. If, on the other hand, earnings fall in May, that 38th percentile also feels low. A very odd phenomenon IMHO, right now.

This is trade analysis, not a recommendation.

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