Tuesday, September 25, 2012

VeriFone (PAY) - Depressed Vol as Stock Gaps Down

PAY closed at $30.02, down 3.4% with IV30™ up 1.4%. The LIVEVOL® Pro Summary is below.


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VeriFone Systems, Inc. (VeriFone), formerly VeriFone Holdings, Inc., is a holding company for VeriFone, Inc. The Company is engaged in the secure electronic payment solutions.

This is a vol note, but this time low vol. I found PAY using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV60™ GTE 1
IV60™ - HV60™ LTE -8 and GTE -40
HV180™ - IV60™ GTE 8
Average Option Volume GTE 1,200
Industry != Bio-tech

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The PAY Charts Tab (vol only) is included (below). The top portion is the stock price, the bottom is the vol; (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).

On the stock side we can see the abysmal returns over the last six months. On 3-26-2012 this was a $52.03 stock. As of this writing (the close today), the stock is down more than 42%. Included in this six month stock chart are two earnings reports -- both of which saw gaps down off of the news. Basically, not good results for PAY shareholders recently. It's that performance with the vol that caught my attention.

On the vol side we can see how depressed the IV60™ is relative to the two historical realized measures HV60™ and HV180™. In fact, even HV20™ and HV30™ are considerably higher than the 60-day implied. The vol comps are:

IV60™: 41.00%
HV20™: 62.21%
HV30™: 53.84%
HV60™: 58.03%
HV180™: 52.16%

So we can see that across the board the IV60™ is well depressed to the recent and long-term stock movement.

Let's turn to the Skew Tab.

The red curve represents Oct while the yellow curve represents Nov. We can see a rickety albeit normally shaped term structure, with the Nov options priced to higher vol than Oct. I believe that the next earnings release should be in Dec, so the elevated Nov vol is not a reflection of that vol event.

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

Across the top we can see Oct vol is priced to 38.62% while Nov is priced to 40.59% -- so a slight elevation from Nov to Oct. Ultimately, the low vol (both IV60™ and IV30™) are compelling. Even though we're looking further out, the IV30™ is in the 27th percentile (annual) -- granted, this is right after earnings, so that number isn't necessarily weird.

This is trade analysis, not a recommendation.

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