Friday, November 16, 2012

OfficeMax (OMX) - Stock Reaches New Annual High, But Reasoning is... Different. Is Vol Too Low?

OMX is trading $9.48, up 15.2% with IV30™ up 8.6%. The LIVEVOL® Pro Summary is below.


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OfficeMax Incorporated (OfficeMax) is engaged in both business-to-business and retail office products distribution. The Company provides office supplies and paper, print and document services, technology products and solutions and office furniture to large, medium and small businesses, government offices and consumers.

This is a depressed vol note in a stock popping and continuing a run of days each
making new annual highs.

Let's start with the Charts Tab (one-year), 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 the awesome rise y-o-y and even more notably, over the last couple of months and weeks. Here are some return stats:

Y-O-Y: $5.31 --> $9.48 +78.5%
7-25-2012: $4.27 --> $9.48 +122%
10-24-2012: $7.19 --> $9.48 +31.8%

The 52 wk range in stock price is [$4.06, $8.75], so obviously the price rise today is well into new annual high territory. Here's the news pushing the stock over the last few days:

(Reuters) - Shares of U.S. office supplies chain OfficeMax Inc (OMX.N) rose as much as 29 percent on Friday on expectations the company will benefit from an initial public offering of wood products maker Boise Cascade LLC, in which it holds a 20.4 percent stake.


"This gain is expected to be recognized in earnings as the company's investment is reduced," OfficeMax said in a filing with the Securities and Exchange Commission on November6.

Source: Reuters via Yahoo! Finance; OfficeMax shares soar on expected gain from Boise Cascade IPO, written by Ranjita Ganesan in Bangalore; editing by Ted Kerr.

So that's today... But before today,the stock climb was earnings related...

What: Shares of office-products supplier Office Max (NYSE: OMX) jumped as much as 18% today after a better-than-expected earnings report.

So what: Like its peer Office Depot (NYSE: ODP) , whose shares were also flying today, Office Max was able to beat estimates by cutting costs. Revenue, nonetheless, slipped 1.7% from a year ago, but adjusted EPS increased slightly to $0.27, topping estimates of $0.25. Same-store sales dropped by 2.1%. Shares of the retailer have come roaring back in the past few months, doubling since August, as some see it as a value play.

Source: The Motley Fool via Yahoo! Finance; Why Office Max Shares Soared, written by Jeremy Bowman.

And then even before that...

What: Shares of office supply chain OfficeMax (NYSE: OMX ) rallied as much as 13% today, following the finalization of the extinguishment of non-recourse debt tied to Lehman Brothers.

So what: It’s a little confusing, but in 2004, OfficeMax received an $871.5 million Lehman-backed note in connection with a timberlands sale. OfficeMax turned around and monetized the note by issuing securitization notes through a special purpose entity that was backed by Lehman Brothers. Lehman’s bankruptcy in 2008 constituted a default under the terms of the note, and a U.S. Bankruptcy Court order will finally allow the extinguishment of the debt from OfficeMax’s books. OfficeMax expects to report a one-time gain of $671.1 million in the third-quarter, and anticipates the increased balance sheet clarity will help investors better understand the company.

Source: The Motley Fool via Yahoo! Finance; Why OfficeMax Shares Popped, written by Sean Williams.

Seems like lots of good stuff, but is it really? The IPO thing today is a one-time event. The debt resolution was a one-time event and the cost cutting feels like it's not a perpetual event. Here's where it gets interesting...

Let's turn to the vol chart for the last year (IV30™).

What we can see is how depressed the vol is relative to its own annual history. A vol decline as stock rises is common place, but let's not lose sight if why the stock is rising -- these aren't long-term trends (IMHO) -- these are sort of, one offs in succession. The 52 wk range in IV30™ is [40.99%, 91.74%], putting the current level in the 26th percentile.

So as the stock is making new annual highs on one-time events and rather questionable earnings (in terms of repeat-ability), the vol is dropping? This feels a little... off, no?

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

Across the top we can see the monthly vols are priced to 54.56% for Dec and 54.25% for Jan'13 -- so still in the bottom quartile of annual 30-day vol. The options have been very active today with more than 7,200 contracts trading on total daily average volume of just 544. The Stats tab is included below.

Note the net premium and rising vols by month (in the Options tab across the top) -- this is the circumstantial evidence that vol buyers are coming in today. Perhaps the 26th percentile is too low? Ya know... or not...

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