Tuesday, August 14, 2012

Walgreen (WAG) - Vol Hits Multi-year Lows Following Dispute Settlement

WAG is trading $35.74, down small with IV30™ unched. The LIVEVOL® Pro Summary is below.


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Walgreen Co. (Walgreen), together with its subsidiaries, operates a drugstore chain in the United States. The Company provides its customers with multichannel access to consumer goods and services, and pharmacy, health and wellness services in communities across America.

I know I don't normally write about 19 vol stocks, but this one caught my attention in an otherwise slow day. 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 volatile the ride has been. Here are the three moves I've highlighted:

4-17-2012: Stock went from $33.30 to $35.07, up 5.3%.

6-18-2012 --> 6-20-2012: Stock went down from $31.96 to $29.21, down 8.6% on earnings.

7-19-2012: Stock went up from $30.97 to $34.62, up 11.8%.
Here's a news snippet from that day:

LOS ANGELES (MarketWatch) — Shares of Walgreen Co. made double-digit percentage gains Thursday after the drug retailer announced it had ended a seven-month dispute with Express Scripts Holding Co. and will now start to take the pharmacy-benefit manager’s customers.

Investors bid the shares nearly 12% higher in recent action to $34.62, rallying as Walgreen (US:WAG) brought the feud to a halt. Express Scripts (US:ESRX) also climbed, adding nearly 2% to $58.76.

But the peacemaking had a detrimental effect on shares of CVS Caremark Corp. (US:CVS) and Rite Aid Corp. (US:RAD), Walgreen’s rivals.

Rite Aid tumbled by more than 6% to $1.20, while CVS Caremark also dropped more than 6% to $45.43. The two companies had been taking Express Scripts customers away from Walgreen.

Source: Marketwatch via Yahoo! Finance; Walgreen soars as dispute ends, but rivals fall, written by Russ Britt.

So, in totality, the stock has had some volatile days. Looking to the vol portion of the Charts Tab, though, we can see how depressed the implied is to both the short-term and long-term historical realized vols. Before today, the 52 wk range in IV30™ was [19.09%, 46.38%], so the level today is a new annual low. In fact, it's at least a two year low. Granted, the Express Scripts dispute ended n' stuff, but still, a multi-year vol low right now... It makes sense, yet is noteworthy, if that makes any sense.

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

The skew is normal, with the back two expiries demonstrating a normal skew shape and the front showing a parabolic shape, which isn't uncommon three and a half trading days from expo.

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

We can see the monthly vols across the top are priced to 18.24%, 19.00% and 23.52%, respectively for Aug, Sep and Oct. An interesting set up could be to follow the trend with low vols and fund an earnings month long option position with front month sales and then rolling them after each expo. I'm not saying this is a good trade, I'm just trying to add some color.

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