Friday, December 28, 2012

Northrup Grumman (NOC) - Vol Pushes into New Annual High; Earnings Vol Left Behind. Defense Industry Holding Breath for Fiscal Cliff?

NOC is trading $67.18, down 0.8% with IV30™ up 7.9%. The LIVEVOL® Pro Summary is below.


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Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services.

This is an almost identical post to the one I wrote on LMT a couple of days ago. Rising vol to new highs and earnings vol priced below the front. You can read the LMT post here:

Lockheed Martin (LMT) - Vol Reaches New Annual High; Fiscal Cliff Related?

I found NOC using a real-time custom scan. This one hunts for elevated vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated to its own annual history (at least in the 80th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The six-month NOC Charts Tab is included (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 relatively quiet period with the price moving from $61.73 to now just over $67 in half a year. The 52 wk range in stock price is [$55.38, $70.65].

But this is a vol note, so let’s focus on the IV30™. I have included the six-month implied chart in isolation, below.

The trend is pretty obvious -- up. The vol was trading below 14% in late summer and is now nearly twice that level. The 52 wk range in IV30™ is [13.39%, 24.74%], putting the current level well into new annual high territory.

The story gets even more interesting when we look to the Skew Tab, below.

We can see the shape is normal and quite pretty really, but note how Jan is elevated to Feb. This is odd because the next earnings release for NOC should be in the Feb expiry but outside of Jan. In other words, the vol is topping an annual high today, but the earnings vol is not following suit.

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

Across the top we can see the monthly vols are priced to 27.46% for Jan and 25.10% for Feb. This automatically triggers a thought in my mind to analyze a calendar spread of some sort. Then again, with the implied reaching an annual high right now, selling the font could be a disaster. This will be a very interesting one to watch unfold for sure. I'll quote myself from the LMT post, "If this is fiscal cliff related watch for climbing vol and then a potential vol crush after the news."

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1 comment:

  1. Well, I think everyone has different perceptions on this issue and we should not criticize anyone for his acts. Everybody has right to live and do what he likes to do.