Thursday, July 5, 2012

Credit Suise (CS) - Depressed Vol with Earnings Approaching in European I-Bank... Weird?

CS closed at $18.22, down 2.0% with IV30™ down 2.2%. The LIVEVOL® Pro Summary is below.


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Credit Suisse Group AG (Credit Suisse) is a global financial services company. The Company operates in three segments: Private Banking, Investment Banking and Asset Management. In Private Banking, it offers advice and a range of financial solutions to private, corporate and institutional clients.

This is an interesting vol note with earnings approaching. I found CS 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 snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

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.

The CS Charts Tab is included (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 stock was trading at ~$30 in mid-March and is now trading in the high teens. In fact, since 3-19-2012 when the stock closed at $29.69, CS is down 38.6%. The 52 wk range in stock price is [$16.95, $38.08].

On the vol side, we can see how the implied has been dipping just as the short-term historical realized vol has been rising. In English, as the stock has been moving the implied vol has been dropping. The 52 wk range in IV30™ is [26.40%, 83.49%], putting the current level in the 22nd percentile. As of right now the vol comps are:

IV30™: 39.29%
HV20™: 58.23%
HV180™: 48.19%

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock (and thus the custom scan trigger). But there's another extra something special here that made this one interesting.

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

We can see that Jul is depressed to both Aug and Sep. The next earnings release for CS is due out in the Aug cycle (in late Jul), so a vol diff makes sense. But when looking more closely at the actual values, the difference is pretty small.

Finally, let's look to the Options Tab (below).

Across the top we can see that the monthly vols for Jul and Aug are 38.57% and 39.91%, respectively. Note that ~40% for Jul would be in the 23rd percentile for IV30™ and it has a vol event (earnings). Odd that a large European investment bank with earnings due out in a month would demonstrate vol in the lower quartile of its own history (annual)... right?

This is trade analysis, not a recommendation.

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