Wednesday, September 5, 2012

Monster Worldwide (MWW) - Takeover Spec Abruptly Transforms Vol Term-Structure in Three Days

MWW is trading $7.86, up 10.6% with IV30™ up 31.3%. The LIVEVOL® Pro Summary is below.

Monster Worldwide, Inc. (Monster Worldwide) is parent company of Monster, the global online employment solution. With a presence in approximately 55 countries globally, including key markets in North America, Europe, South America and the Asia-Pacific region, Monster offers online recruiting solutions.

This is a vol and stock note on a company that seems to be nearing a takeover bidding war. Let's start with the news, and move onto the vols and skew.  We'll look at an awesome term structure change over just three days.

Rumor: Monster Worldwide up on renewed private equity speculation
Strength in Monster Worldwide is being attributed to renewed private equity speculation. Note that dealReporter has reported numerous stories since the beginning of July that the company has met with private equity firms.

Source: via Yahoo! Finance; Rumor: Monster Worldwide up on renewed private equity speculation.

The odd part is, this was news from 8-15-2012. My best guess is there was some more news today pushing this rumor further, but when we look to the skew we'll see that the option market is not taking this rumor lightly.

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 a rather tight range. In fact the stock has gone from $7.52 to $7.86 in the last six months.

On the vol side we can see the absolute explosion today in the implied. The 52 wk range in IV30™ is [36.32%, 91.73%], so the level today is well into annual high territory. In fact, it's at least a two year high in the implied and likely further back. In English, the option market reflects greater risk now than it has in at least two years.

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

Here's where it gets interesting. There is a large vol diff moving from the back to the front (monotonically) by expiry. This term structure is a direct result of the "something" today. I've included the Skew Tab as of yesterday below, for comparison.

While we can see the same monotonic relationship from back to front, the vol difference is much larger today than yesterday between months. In English, the option market reflects much greater risk in the near-term than in the medium-term and that risk premium has popped as of today.

Let's turn to the Options Tab, for completeness.

Across the top we can see the monthly vols are priced to 109.35%, 95.82% and 71.79% for Sep, Oct and Dec, respectively. We can also see the vol point moves on the day which are +30.11, +19.0 and +4.9 vol points for Sep, Oct and Dec, respectively.

Said differently (and perhaps more helpfully), the vol diff between Sep and Oct is now 14 vol points. Yesterday it was less than 3 vol points and two days ago Oct was priced nearly 5 vol points higher than Sep. In total, in the last three days, the vol difference between the front two months has gone from -5 to +14 (Sep - Oct). That is a complete term structure change on what appears to be... no news.

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