Wednesday, July 25, 2012

WellPoint (WLP) - Stock Gaps Down Off of Earnings; Vol Rises

WLP is trading $53.77, down 12.5% with IV30™ up 7.7%. The LIVEVOL® Pro Summary is below.


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WellPoint, Inc. (WellPoint) is a health benefit company in terms of medical membership in the United States, serving 34.3 million medical members through its affiliated health plans and a total of 65.3 million individuals through all subsidiaries as of December 31, 2011.

This is a very quick vol note in a great example of how vol can rise after earnings. 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 the underlying dipped off of the Supreme Court ruling surrounding ObamaCare. For more on that story, you can read this post:
Obama Care - Why it Matters to Options, How Vols Explode While Industry Correlation to Market Moves Toward Zero.

But, the news is all about today. We can see that stock drop off of the earnings report. Here's a quick snippet that summarizes the news:

Shares of several health insurers sank Wednesday after WellPoint Inc. cut its 2012 earnings forecast and its second-quarter net income dropped more than 8 percent.

WellPoint, the nation's second-largest insurer after UnitedHealth Group Inc., said its enrollment slipped in the quarter. Companies cut jobs, reducing the number of people covered by employer-sponsored health insurance. WellPoint's medical costs also spiked in May. Although they returned to normal levels last month, WellPoint decided it was prudent to lower its forecast in case costs spike again later this year.

The insurer's new 2012 profit view of $7.30 to $7.40 per share was well below the $7.76 per share expected by analysts, according to FactSet. Its quarterly profit also fell short of Wall Street's forecast.

Source: AP via Yahoo! Finance; WellPoint 2Q results infect insurer stocks

The news has hit the other insurers, in particular UNH. This is another example of how tightly correlated this group is.

Looking to the vol we can see the point of this post, which is simply to demonstrate that vol has risen off of earnings. See, it is possible!... Vol is up not because of the bad news, it's up because of the added uncertainty that WLP disclosed looking forward. The decreased visibility for future quarters is a new a risk, the bad news in and of itself is not.

I'll skip the skew since there's not a lot going on, and we'll just peak at the Options Tab, for completeness.

Across the top we can see the monthly vols are priced to 32.32%, 31.43% and 33.16%, respectively for Aug, Sep and Dec. We can also see that vol is up across the board, with Sep showing the largest increase (in both vol points and percentage terms).

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