Friday, June 29, 2012

Lincare (LNCR) - Takeover Rumors Push Stock Up 35%; Vol at Annual High... But is it High Enough?

LNCR is trading $33.29, up 3.1% with IV30™ up 9.8%. The LIVEVOL® Pro Summary is below.


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Lincare Holdings Inc. (Lincare) is a provider of oxygen, respiratory and other chronic therapy services to patients in the home. The Company’s customers suffer from chronic obstructive pulmonary disease (COPD), such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen, respiratory and other chronic therapy services.

This is a stock and vol note in a company that has been ripping as of a few days ago due to takeover (and bidding war) rumors. Let's start with the news, then get into the stock and vol moves:

Lincare Holdings Inc. (LNCR), a U.S. provider of oxygen and respiratory therapy services, is seeking a buyer and has attracted interest from companies including Germany’s Linde AG (LIN), two people familiar with the sale said.

Air Liquide SA (AI) of France has also expressed interest, one of the people said. JPMorgan Chase & Co. is advising Clearwater, Florida-based Lincare in talks with potential buyers, said the people, who asked not to be identified because the process is private. Linde, the world’s second-biggest maker of industrial gases, has also hired investment banks to advise it on a possible bid, one person said.

Since the close of June 26, Lincare has risen more than 32 percent, valuing the firm at $2.9 billion euros as of 12:21 p.m. New York time today. The Financial Times’s FT Alphaville reported on June 27 that Linde is leading the bidding in an auction for the U.S. company, citing unidentified sources. Linde Chief Executive Officer Wolfgang Reitzle has identified health care as one of the firm’s growth areas and in January agreed to buy Air Products & Chemicals Inc. (APD)’s home-care business.

Lincare may be worth $40 or more per share if it’s bought, Jefferies Group Inc. analyst Brian Tanquilut said in a note this week, raising the stock to “buy.” The stock was at $33.46 in early afternoon trading.

Private equity firms may also be interested in the company, said one of the people. The company is an “ideal” leveraged buyout target, Citigroup Inc. analyst Gary Taylor wrote in a note this week.

Source: Bloomberg via Yahoo! Finance; Lincare Said to Draw Interest From Linde and Air Liquide, written by Aaron Kirchfeld and Jeffrey McCracken.

Very exciting...

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, we can see the abrupt pop that the article referenced. This was a $25 stock a few days ago and had been trading in a fairly tight range over the last six months -- roughly between $22 and $28. The 52 wk range is [$19.17, $33.19], meaning the levels reached today are new highs.

On the vol side, we can see the implied popping with the short-term historical realized vol. In English, the implied has moved with the stock. The 52 wk range in IV30™ is [21.08%, 72.49%], where that top number was reached on 6-27-2012.

One interesting question may be to ask that, while the vol is at or near an annual high, is ~70% really high enough? I mean, is this company literally in a bidding war? Will the decision (or news) be announced soon?

Let's turn to the Skew Tab to examine the monthly vols.

We can see a clear vol increase from the back to the front. While earnings are due out in the Jul cycle, that vol is not just from earnings -- it's the event (or possible event) risk surrounding a takeover target that's driving the risk. I do note that the OTM calls actually do have lower vol than the ATM strikes -- that's "normal" but this company isn't "normal" right now -- the takeover stuff is known. The skew shape is odd, which is to say, it's oddly normal, IMHO.

Finally, let's turn to the Options Tab, for completeness.

We can see the monthly vols across the top are 68.39%, 53.81% and 38.54% for Jul, Aug and Nov, respectively. Or in English, the options reflect substantially more risk in the near-term than the medium to longer-term.

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Orexigen Therapeutics (OREX) - FDA Approval in ARNA Has Huge Impact on OREX; Now What?

--- OVERVIEW ---
OREX is trading $5.75, down 2.5% with IV30™ up 0.4%. The LIVEVOL® Pro Summary is below.


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Orexigen Therapeutics, Inc. (Orexigen) is a biopharmaceutical company focused on the development of pharmaceutical product candidates for the treatment of obesity.

This is a stock and vol note in a bio-tech that just saw one of its competitors get some very good news. Let's start with the news yesterday in ARNA and then move on to examine OREX.I do note the very high volume today in OREX options and stock -- more on that later.

Shares of biotech companies in the anti-obesity market surged on the announcement that the Food and Drug Administration had approved the first weight loss pill since Roche Holding AG's Xenical in 1999. According to data from the National Institute of Health obesity related spending could rise to $343 billion in 2018.

Arena Pharmaceuticals anti-obesity drug Belviq was approved by the FDA on Wednesday. The drug was cleared for use in obese/overweight adults who have at least one medical condition. Obesity has become a major problem in the U.S. as it is estimated roughly 35 percent of the population is obese.

Source: Market wire via Yahoo! Finance; Arena Pharmaceuticals Shares Soar as FDA Approves First Weight Loss Drug in Over a Decade

--- ANALYSIS ---
That news matters to OREX for a simple reason -- OREX is trying to do the same thing. As the article reads, the FDA has not approved a weight loss drug in over a decade. It seems the door may finally be opening.

Let's turn to the Charts Tab (six months) for OREX, 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 that six months ago OREX was trading at ~$1.60. In fact, the 52 wk low is $1.22. The $5.95 52 wk high was reached yesterday on the ARNA news. In fact, in the last three trading days (highlighted in the chart), OREX has popped from $3.91 to now $5.75, or up 47%. JPM came out with an interesting take on OREX today. I've included a little snippet, below.

Orexigen Therapeutics (NASDAQ:OREX) shares move (way) up again Thursday, riding the FDA approval of Arena Pharmaceuticals’ (NASDAQ:ARNA) Belviq weight loss drug. Shares were moved up to Overweight by JPMorgan, which said that they “stand to be the biggest beneficiary”, since approval for OREX’ own weight loss med, Cintrave, remains far in the future [.] The situation leaves a valuation gap with competitors whose drugs are closer to being okayed.

Source: WALL ST. CHEAT SHEET via Yahoo! Finance; Healthcare Business Recap: Orexigen RIDES Arena, Anthera IMPLODES, written by Mark Lawson.

Note the phrase, "far in the future." Looking to the vol side, we can see how the implied has climbed in lockstep with the short-term historical realized vol. In English, the implied has risen to match the actual short-term movement of the stock. The 52 wk range in IV30™ for OREX is [62.73%, 114.67%], putting the current level in the 80th percentile (annual). This is a great reminder of the fact that while company specific news is the greatest driver of vol, correlation (especially in bio-tech) can make another company's firm specific news incredibly meaningful.

The fact that vol has remained elevated for OREX is a bit curious -- actually, more than a bit. Note that the vol in ARNA has come down from 245.82% to 93.58% (as of this writing) in the last three days.  The news is out, now it's a quiet(er) period.  I'm not sure what's going on with OREX -- the vol isn't high enough to reflect company specific FDA news, and it's too high to be considered "normal."

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

We can see a monotonically increasing vol from the back to the front -- the option market reflects greater near-term risk than medium-term. The next earnings release for OREX should be in the Aug expiry, so it's a non-trivial phenomenon that Jul is elevated to Aug. Tricky...

--- SUMMARY --
Finally, let's turn to the Options Tab for completeness.

We can see (from the green numbers next to the strike prices) the volume has picked up today in OREX. In fact, over 8,400 contracts have traded today on total daily average volume of just 1,224. The call:put ratio today is ~ 1:1.2, so no real one-sided trading happening. I do note that over 12 million stock shares have traded on total daily average volume of just 1.9 million and we're just two hours into the trading day. People want to position themselves in OREX, but why now?...

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Thursday, June 28, 2012

Obamacare - Supreme Court Ruling; What it Means Politically and to Trading and Why It's Not Over

I first wrote about the Health Care bill and pending Supreme Court decision on 6-11-2012. You can read that original post by here:
Obama Care - Why it Matters to Options, How Vols Explode While Industry Correlation to Market Moves Toward Zero .

I'll summarize the prior post and try to make some sense of the option markets with the decision now out and discuss what could happen later.


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Before we go anywhere, let's start with the ground breaking news today. But, I promise, I will get to the vol and stock moves and which sub-sectors within healthcare are affected, and what the vol implications are now and later.

Ultimately I don't believe this is over (from a vol and options trading perspective). More on that conclusion after some background and analysis. But, this analysis does require some background, so... here we go:

WASHINGTON (AP) -- The Supreme Court on Thursday upheld the vast majority of President Barack Obama's historic health care overhaul, including the hotly debated core requirement that virtually all Americans have health insurance.

The 5-4 decision means the huge overhaul, still taking effect, will proceed and pick up momentum over the next several years, affecting the way that countless Americans receive and pay for their personal medical care.

The ruling hands Obama a campaign-season victory in rejecting arguments that Congress went too far in approving the plan. However, Republicans quickly indicated they will try to use the decision to rally their supporters against what they call "Obamacare."

Stocks of hospital companies rose sharply, and insurance companies fell immediately after the decision was announced that Americans must carry health insurance or pay a penalty.

Breaking with the court's other conservative justices, Chief Justice John Roberts announced the judgment that allows the law to go forward with its aim of covering more than 30 million uninsured Americans.

The justices rejected two of the administration's three arguments in support of the insurance requirement. But the court said the mandate can be construed as a tax. "Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness," Roberts said.

The court found problems with the law's expansion of Medicaid, but even there said the expansion could proceed as long as the federal government does not threaten to withhold states' entire Medicaid allotment if they don't take part in the law's extension.

The court's four liberal justices, Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan and Sonia Sotomayor, joined Roberts in the outcome.

The legislation passed Congress in early 2010 after a monumental struggle in which all Republicans voted against it. House Majority Leader Eric Cantor, R-Va., said Thursday the House will vote the week of July 9 on whether to repeal the law, though such efforts have virtually no chance in the Democratic-controlled Senate.

Source: AP via Yahoo! Finance; High court upholds key part of Obama health law

I think the most important (and most frequently asked) question surrounding this bill is quite simply, what does it all mean? I've included a snippet from the post in early Jun which does a decent job of summarizing the impact of the bill.   Please note the source.

1. Patients Cannot Be Dropped

The first change that will immediately take place is that health insurance companies will no longer end or refuse to renew coverage unless you have misrepresented yourself or your medical situation, or if fraud has been committed.

Likewise, your coverage cannot be dropped suddenly for reasons you may not be aware of. The health car bill mandates the removal of pre-existing condition clauses from all health insurance plans by 2014

2. Immunization and Preventive Care Must Be Covered

Another change is a section of the bill that requires all health insurance companies and all health insurance plans to cover both immunizations and preventive care.

3. Dependents Can be Covered Until Age 26

A third change has to do with dependents. It used to be that unmarried children could be covered under a parent’s health insurance plan until the age of 23.

4. Everyone is Required to Pay for Health Insurance?

The last notable change that goes into affect immediately has to do with limits. Health insurance companies can no longer put an annual or lifetime limit on a health care plan that is not reasonable. A limit is an amount of money predetermined by the insurance company.

Once an individual reaches this limit, they have to pay all other medical expenses out of pocket. This practice was put into place by insurance companies due to the rise of cancer. What is considered reasonable will be based on income, family size, and past usage of medical benefits.

What changes will occur in the long run?

There are many more changes that will go into affect over the next 5 years due to Obama Care. The most significant change for the average American is the removal of pre-existing conditions. For years, pre-existing conditions have caused millions of Americans to be without adequate coverage for diseases. Obama Care requires the removal of pre-existing clauses from all health insurance plans by 2014.

Another significant change is that Americans who do not obtain minimal health insurance coverage by the year 2014 will have to pay a penalty of $95. This penalty will rise every few years.

Source:; What is Obama Care?

There were several questions surrounding the ruling. Here's a quick summary from the last blog post:

The Supreme Court now has to rule on the constitutionality of the law. There is a question as to whether or not the entire bill will be thrown out if there is in fact a ruling against it. In other words, there seem to be three potential outcomes: (1) Entire law goes into effect (2) Entire law does not go into effect (3) A part of the law goes into effect.


The expected impact given the different possibilities is summarized below:

NEW YORK (TheStreet) -- Investors will soon realize not all health care stocks are equal as the Supreme Court prepares to decide Obamacare's fate.

The good is for companies like Aetna(AET), Cigna(CI) and Coventry(CVH), which profit across the three major segments of Medicare, Medicaid and commercial health insurance. The bad is for the Medicaid HMOs like Amerigroup(AGP), Molina(MOH) and Centene(CNC).

"The companies that would be worst affected if the law were thrown out entirely ... you'd expect probably the Medicaid players, which would be Molina, Amerigroup, Centene, to fare poorly, given that they were hoping to take advantage of Medicaid expansion, which almost certainly wouldn't be resurrected if the law were thrown out," said Matthew Coffina, senior health care analyst at Morningstar.

Some estimates have found that between 16 million to 20 million new Americans would be eligible to enroll in Medicaid if the Supreme Court upholds Obamacare.

Obamacare as a whole gets thrown out, Medicaid HMOs would lose a large revenue opportunity they had expected to begin in 2014.

Medicaid enrollment would rise in 2014 because the law stipulated a shift in income eligibility; simply, the government would extend its low-income health insurance program to earners with a higher annual income than what is currently allowed.


"So that's not currently in their earnings -- they're not going to benefit today in their actions -- but come 2014 it would be a tailwind to revenue growth and profit," said Chris Rigg, senior health care analyst at Susquehanna Financial Group. "In the investment community there's a discounted value of that future revenue stream in the share prices today, and that discounted value goes away ... if health reform is overturned."

Source: via Yahoo! Finance; Health Care Poised to Weather Obamacare's Fate, written by Joe Deaux.

So there we go. Now let's actually look at what happened and so some analysis. Let's start with the Livevol® Pro Summaries from today and from 6-11-2012 for three sub-sectors within health care -- managed care, Medicaid HMO's and hospitals.

Managed Care
6-28-2012 6-11-2012

Medicaid HMO's
6-28-2012 6-11-2012

Hospital Stocks
6-28-2012 6-11-2012

Let's start with the stock reactions:

1. Bad news for managed care:
This is a tough one. I'm guessing the increased reach of Medicaid (16-20 million more people) could mean some of those people that once paid for managed care, will now switch for the government subsidy. The argument for managed care though is opaque beyond the Medicaid issue. I'm not sure we really know what impact the new rules on policy limits, pre-existing conditions and other "stuff" will have. I do note that the move down in managed care is less (in absolute value) than the move up for the other two sectors.

2. Good news for Medicaid HMOs:
Medicaid HMO companies should see somewhere in the range of 16-20 million new customers as the bill expands the reach of Medicaid by raising the minimum income level needed to qualify. More customers means more money.

3. Good news for hospitals:
Hospitals should see more customers -- more people insured means more people getting treatments, means more money.

The vol reaction is much easier to analyze:
The news is out, that means the unknown is now known, that means risk is down and thus vol has dropped significantly.

Using the small portfolios above to represent the individual sub-sectors in healthcare, the stock and vol moves summary stats are:

Many analysts posed the hypothesis that the market was pricing in a pre-decision expectation. I think the numbers above do actually point to a pre-decision expectation (IMHO). The fact that vol is down the most in the managed care companies by a fairly large amount while the stocks are all down, points to an expectation that the bill would be overturned (ruled unconstitutional). In many ways, this decision was a "surprise."

Further evidence of this expectation can be seen in the vol and stock comps for the managed care companies as of the first note (6-11-2012).

In English, the vols of these managed care companies had been exploding since 5-18-2012, while the stock prices had been rising. In that same time period, the vol for the overall market (SPY) was down significantly. This is a wonderful example of two phenomena that make option trading so interesting:

1. When vol rises, it doesn't mean that stock is dropping.
2. When industry specific news overhangs an entire industry, the correlation to the overall market (in terms of vol and / or stock) becomes almost meaningless.

--- SUMMARY --
Ultimately, the Supreme Court's ruling is groundbreaking in the political spectrum and has far reaching impact on the healthcare industry as well as in each of our own lives. From a trading perspective, I'm not convinced that the impact is fully understood, but a chunk of this bill doesn't get implemented until 2014. In between then and now lies a Presidential election.

I believe the impact of the bill if it were to go into effect will be much better known in six months with more research and analysis (and you can bet some firms crying foul and others praising it, strictly from the perspective of their own net income), and the vol will rise in all of these firms again -- by a lot. Why?... Because if Obama is re-elected, this becomes law. If he isn't, then it may just be "that thing we talked about that one time."

The vol has come in today, but I don't think this is done.

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Wednesday, June 27, 2012

First Solar (FSLR) - Depressed Vol in Stock Down 92%

FSLR is trading $15.05, up 1.1% with IV30™ down 2.6% as of ~10:45am EST. The LIVEVOL® Pro Summary is below.



First Solar, Inc. manufactures and sells solar modules with an advanced thin-film semiconductor technology, and it designs, constructs, and sells photovoltaic (PV) solar power systems. The Company is a thin-film PV solar module manufacturer and a PV solar module manufacturer.

I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

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 how FSLR has been declining over the last six months. In fact, the 52 wk range is [$11.43, $142.22], so the drop to $15 is a 92% decline from the annual high. Although it’s hard to see, I’ve highlighted the stock pop on 6-12-2012 when the stock rose from $12.33 to $14.95, or 21%. I’ve included the news snippet from that day, below:

First Solar shares are spiking today on a report that the solar-products maker is ramping up production to meet unexpectedly high levels of demand in Germany.

The stock is up 23% to $15.15, by far today’s top performer in the S&P 500.

Earlier today, Reuters reported First Solar will increase production at its German plants even though those plants are scheduled to close later this year. The decision comes amid an unexpected surge in demand.

Source: via Yahoo! Finance; First Solar Shares Surge Amid German Output Jump, written by Steven Russolillo and Kevin Kingsbury.

For a slightly longer-term perspective of the ride this stock has taken (a ride down), I’ve included the Charts Tab for twelve months, below.

It’s easier to see the massive stock decline from this chart.

On the vol side, we can see how the implied has been declining of late to now under 80% as the HV20™ has spiked off of that one day move in mid-June. As of right now the implied is depressed to both the short-term and long-term historical realized vols. Specifically:

IV30™: 79.52%
HV20™: 103.20%
HV180™: 89.12%

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

We can see that Aug is priced above Jul (in terms of vol) likely due to an earnings announcement in Aug. The red curve represents the weekly options expiring in 1.5 days, so that wild upside skew isn’t necessarily representative of any great revelation – it’s just a cab bid in the 24 calls. Not a whole lot goin’ on in the skew that I see.

Finally, let’s turn to the Options Tab, for completeness.

Across the top we can see the monthly vols are priced to 79.52% and 88.80% for Jul and Aug, respectively. Again, that Aug vol reflects earnings risk. In terms of a trade, while the implied has been dipping of late and this stock can definitely gap, I do make note of the 52 wk range in IV30™, which is [42.05%, 128.34%],putting the current level in the 43rd percentile. In fact, it was just late Mar when IV30™ was hovering around 60% while the stock was trading in the $26 range. Note that the HV20™ is in fact elevated off of a single day’s move (6-12-2012).

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Tuesday, June 26, 2012

Energy XXI (EXXI) - Vol Pops as Near-term Call Buyers Pile In

--- OVERVIEW ---
EXXI is trading $27.12, up 2.5% with IV30™ up 9.3%. The LIVEVOL® Pro Summary is below.


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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico. The Company is engaged in the acquisition, exploration, development and operation of oil and natural gas properties onshore in Louisiana and Texas and offshore in the Gulf of Mexico.

This is a vol and order flow note in a stock that has been dipping hard of late. Let's start with order flow and then look to some vol charts.

--- ANALYSIS ---
The company has traded 9,555 contracts on total daily average option volume of just 1,626. Calls have traded on an 8.4:1 ratio to puts, with the action in the Jul 29 calls (over 8,200 have traded -- substantially purchases as I see it). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Jul 29 calls are mostly opening (compare OI to trade size). When looking down the entire option chain for EXXI, I don't see any OI larger than 2,064, so the size today is very large for EXXI.

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see that the skew has a normal shape and that the two front months sort of lie on top of each other. It's actually frightening how similar the skew shapes are for these two expiries. I've circled the Jul 29 strike -- there is a slight elevation in vol to those calls from the buying pressure.

Finally, the Charts Tab (six months) is 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 abrupt drop from $38 to now ~$27 in just two months. The drop started with an earnings release, and has continued for several weeks. The 52 wk range in stock price is [$18.75, $39.56].

On the vol side, we can see that the short-term historical realized vol is far outpacing the implied, even with the pop today in IV30™. The 52 wk range in IV30™ is [34.86%, 98.58%], putting the current level in the 26th percentile. So, in English, even as the stock has headed down, the vol is still low relative its annual history. The order flow today gets long vol. I only see ~850,000 stock shares traded today against an average volume of ~1.2 million -- so the calls seem like naked purchases.

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Navistar Int'l (NAV) - Options Still Reflect Elevated Near-term Risk

NAV is trading $24.85, down 2.1% with IV30™ up 1.0% as of ~11am EST. The LIVEVOL® Pro Summary is below.


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Navistar International Corporation (NIC) is a holding company, whose principal operating subsidiaries are Navistar, Inc. and Navistar Financial Corporation (NFC). The Company is a manufacturer of International brand commercial and military trucks, IC Bus (IC) brand buses, MaxxForce brand diesel engines, Workhorse Custom Chassis (WCC) brand chassis for motor homes and step vans, and Monaco RV (Monaco) recreational vehicles (RV), as well as a provider of service parts for all makes of trucks and trailers.

There’s been a lot going on with NAV of late. I posted an article on 6-12-2012 entitled, “Navistar Int'l (NAV) - Vol Hits 2-Year High; Options Reflect "Extraordinary" Near-term Risk; Research Firm Claims Stock Worth 200%-300% More in Takeover.” I summarized the goings-on in that post and will do a very brief re-cap below. But, you can read the full article Here.

Quick Summary
6-7-2012: Stock dropped from $28.15 to $24.11 off of an earnings report. But, the stock actually recovered nicely intraday after it reached its low of $20.11.

6-11-2012: The stock rallied all the way back above that pre-earnings price, closing at $28.74.

6-12-2012: But, note the last part of a Motley Fool article, "Navistar is also waiting for the Environmental Protection Agency to finish its review process of nitrogen oxide emissions in its newer heavy-duty truck engines with no timetable on when that will be completed." Well, it turns out the timetable was today. The stock is off more than 10% again, after rallying all the way back from the earnings report.

Vol actually increased off of the earnings report. That vol rise has continued and is now highly irregular for NAV given its recent (two year) past. On 6-6-12, NAV IV30™ was trading at 57.36%. Today it's up to 83.78%, or a 46% increase in just six calendar days. To give the current level some perspective, the 52 wk range in IV30™ for NAV is [29.97%, 75.53%], so it's well into a new annual high today. Looking back even further, the 104 wk range (2 year) for IV30™ is [27.51%, 75.53%]. In English, the implied is now trading more than 10% higher than the two-year high. That's a lot of vol...

Let’s move to some analysis as of today (6-26-2012) and 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 how the underlying has been on a rather straight line decline since recovering ever so quickly from the various news items (above). Using a little perspective, we can see how the stock has fallen ~50% since early Feb in essentially a straight line down.

On the vol side, we can see how elevated the implied got in mid-June, and though it has come down from those highs, it’s still substantially elevated relative to the long-term historical realized vol as well its own six-month (and two-year) history. The option market still reflects elevated risk for NAV relative to the last two-years.

Let’s turn to the Skew Tab to examine the monthly term structures.

Here’s where it gets interesting. The skew illustrates a monotonic increase from the back to the front, while maintaining a similar shape across the three expiries. The next earnings release for NAV should be in Sep, so outside of the front two expiries but inside Oct. In English, the near-term risk reflected by the options is greater than that reflected in the next earnings release. I do also note the upside skew (OTM calls) in Jul – the potential (risk) of a large upside move is priced (in terms of vol) similar to a large downside move. That shape is not consistent with the back month yielding a large calendar vol diff between the first expiry and the back two to the upside.

Finally, let’s turn to the Options Tab.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Across the top we can see the monthly vols are 81.25%, 74.42% and 69.59%, for Jul, Aug and Oct, respectively. Looking more closely at specific OTM strikes, we can see much larger vol diffs than the 7 points shown between Jul and Aug. Specifically, the Jul/Aug 20 vol diff is more than 15 vol points, while the Jul / Aug 30 vol diff is ~10 vol points.

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