Tuesday, January 29, 2013

Fortinet (FTNT) - Vol Reaches Annual High with Earnings Due out Tomorrow; Puts Too Juicy?

FTNT is trading $19.48, down 7.5% with IV30™ up 8.1%%. The LIVEVOL® Pro Summary is below.


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Fortinet, Inc. (Fortinet) provides network security solutions. Through the Company’s products and subscription services, Fortinet provides integrated and protection against security threats for enterprises, service providers and governmental entities worldwide.

This is a quick vol note on a stock that has earnings due out tomorrow BMO. It's not so much that the vol is elevated, as that is expected, but it's how elevated the vol is relative to the last three earnings cycles along with the stock decline today and the stock gap down last cycle.

Let's start with the one-year Charts Tab 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 stock has had a quite a bumpy ride, most notably after the last earnings report in mid Oct of 2012 when the stock dropped from $24.80 to $20.14 in day. Obviously the IV30™ is elevating into the earnings news, but let's take a closer look by isolating the IV30™ in a one year chart, below.

The blue "E" icons represent the past earnings dates. It's easier to see in this chart that the implied is now at an annual high, above any vol level prior to earnings in the last year. My best guess is that there is some hyper sensitivity based on the last earnings report and that stock slide we see today is circumstantial evidence of that belief.

Finally, let's turn to the Options Tab, below.

Across the top we can see Feb vol is priced to over 90% and Mar to 62.8% -- of course that's merely a reflection of earnings due out tomorrow. It will be an interesting stock reaction to monitor tomorrow -- this may be a case where elevated vol and dipping stock has made the OTM puts far too juicy even for an earnings event based on the fear from the last one. Or the stock can gap down 70% tomorrow -- ya know, either one.

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