Thursday, September 27, 2012

MetroPCS (PCS) - Takeover Spec Pushes Vol and Skew; Earnings Vol Forgotten?

PCS is trading $11.89, up 5.7% with IV30™ up 19.4%. The LIVEVOL® Pro Summary is below.


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MetroPCS Communications, Inc. (MetroPCS Communications) is a facilities-based wireless broadband mobile communications provider in the United States, including the Atlanta, Boston, Dallas/Fort Worth, Detroit, Las Vegas, Los Angeles, Miami, New York, Orlando/Jacksonville, Philadelphia, Sacramento, San Francisco, and Tampa/Sarasota metropolitan areas.

This is a vol note -- specifically spiking IV30™ on the day. We'll examine the impact of he day on the skew and compare it to yesterday as well. But, 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 that awesome price appreciation since the earnings announcement in late July. On 7-25-2012, the stock closed at $6.28, so as of this writing the stock is up over 89%.

On the vol side we can see a fairly muted move in the implied up until the last few days. On 9-20-2012 the IV30™ closed at 45.24%. As of this writing that measure is up nearly 42%. The stock in that same time frame is up small (ish) from $11.19 to $11.89, or just 6.25%. In English, the option market reflects substantially higher risk as the equity price has been sitting relatively still.

Let's turn to the Skew Tab today (first) and then below that,the skew from the day before (9-26-2012).

We can see quite clearly how the front month (the red curve) has spiked today above Nov (yellow curve). And the news is a report from Bloomberg that PCS has been in talks with suitors (for a takeover) -- specifically naming S, DISH and DTE. Source: MetroPCS Jumps After DealReporter Renews Buyout Speculation; written by Scott Moritz.  I also note the upside calls in Oct are priced to higher vol than those in Nov.

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

Across the top we can see how Oct and Nov vol have now evened out with Oct up 13 vol points (not percent) and Nov was up just 2.9 vol points. This is noteworthy for a very simple reason: the next earnings release for PCS is due out in Nov (and not Oct) and now the two months share the same vol. Very, very, tricky... Looking to the upside calls, the Oct/Nov 13 call spread (for example) shows a vol diff in favor of Oct (without earnings). Hmmm....

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