Monday, September 17, 2012

Nu Skin Enterprises (NUS) - Front Month Vol Spikes; Questionable Chinese Dealings?

NUS is trading $42.66, down 3.8% with IV30&#8482 up 9.1%. The LIVEVOL® Pro Summary is included below.


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Nu Skin Enterprises, Inc. is a global direct selling company with operations in 52 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively.

This is an interesting vol note -- one that came up on the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol. But, the catalyst to the vol spike is a re-iteration / update from a research group (Citron) about some potentially shady (or worse) business practices for NUS in China and / or something else?...

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ LTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

So, the news stems originally from a research note out from Citron in late Aug. Here's a quick snippet:

Share prices of Nu Skin (NYSE: NUS) have seen a 12% downfall in the last 20 days after short-seller Citron Research published a report alleging that the personal-care products maker was operating an illegal multi-level marketing scheme in China. However, the company’s business model in China is different from its global model and is in compliance with local regulations.

Source: The motley Fool via Yahoo! Finance; Nu Skin: False Allegations, True Fundamentals, written by Ashish Sharma.

It's interesting how this relates to just the business in China. In any case, on 9-12-2012, I saw an update from briefing (bu note the date, 9-12-2012):

Volume alert: Nu Skin seeing afternoon volatility on volume (43.89 -1.07)
The move is attributed to another cautious mention by Citron (update posted today, prior reference on Aug 16)

Source: Provided by Briefing (

Let's turn to 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).

We can see the turn up in the implied today and how IV30™ is now elevated to both the short-term and long-term historical realized vols. Specifically:

IV30™: 56.36%
HV20™: 26.38%
HV180™: 44.88%

I do note how "quiet" the stock has been for the last 20 trading days -- that HV20™ number is low and dropping. However, since HV is calculated close-to-close, it will pop a bit on tomorrow's chart. The 52 wk range for IV30™ is [23.59%, 71.50%], putting the current level in the 68th percentile, and rising...

Let's turn to the Skew Tab, below.

The red curve represents Sep, yellow is Oct and green curve is Dec. We can see a couple of things:

1. The skew across all three of the front expiries has a normal, so there are no inconsistencies across the term structure.

2. There is a monotonic vol increase from the back to the front.

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

We can see across the top the monthly vols are priced to 67.60%, 55.955 and 54.04% for Sep, Oct and Dec, respectively. But, in particular, note the vol spike in he Sep options (+21.2 vol points). Whatever the news or catalyst, the front month (week) reflects elevated risk. Hmmm....

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