Thursday, March 28, 2013

Repros (RPRX) - Stock Pops 80% B/C Gay Cubans Have Lots of Sex...?


RPRX is trading $16.22, up 77.7% with IV30™ down 54.5%. The LIVEVOL® Pro Summary is below.



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Repros Therapeutics, Inc. is a United States-based company that develops products and services for the management of reproductive health.

I last wrote about RPRX on 3-1-2013 (i.e. about a month ago). You can read that post here (and I have included the Symbol Summary from that day below as well.:

Repros Therapeutics (RPRX) - Vol Rising in Gapping Stock; Headed to Multi-year Vol Highs into Earnings... Buckle Up

3-1-2013


3-28-2013


"Buckle up" indeed was correct. Here's the news moving the stock, and I am not kidding about the headline:

---
THE WOODLANDS, Texas (TheStreet) -- Yes, Repros Therapeutics(RPRX) CEO Joe Podolski really did get on a conference call Thursday morning to say that his experimental testosterone drug Androxal helped gay Cubans have more sex.

The gay Cubans entered the clinical trial with low testosterone. But after taking Androxal, their testosterone levels rose, leading to lots of sex, Podolski explained. The gay Cuban men had so much sex, in fact, that it caused their sperm counts to fall. Don't blame Androxal for lower sperm counts, Podolski said, blame gay Cubans having so much sex that their ammunition ran low.

At another point during the conference call, Podolski disclosed that a nurse at one of the Androxal clinical trial sites fabricated baseline sperm counts for patients. When Repros discovered the data fraud, the company changed the numbers and everything turned out fine.

Source: TheStreet via Yahoo! Finance;
Repros CEO: My Testosterone Drug Helped Gay Cubans Have Lots of Sex, written by Adam Feuerstein.
---

Well, there you go. There is some disturbing news about some fabricated sperm counts, but I guess that's kinda not a big deal?... As far as I can tell, this is not an FDA trial, it's just sort of circumstantial evidence of the drug's efficacy?

Let's turn to 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).



Three phenomena catch my eye:
1. This was a $4 stock a year ago... Whoa...
2. The incredible stock pop today.
3. The equally impressive vol drop.

Let's turn to the IV30™ chart in isolation below, for the same one-year time period.



Obviously, the point here is the vol drop. So, regardless of whether this is FDA relevant or not, the option market was reflecting heightened risk due to these results and now that they are out, the risk (vol) has collapsed.

Finally, let's turn to the Options Tab.



Across the top we can see Apr vol is priced to 81.84% and May is priced to 75.53%. ultimately this is some excellent news for the firm, or so the equity market says. i guess the potential impropriety by a nurse is nothing to be worried about?... So, everything else was measured correctly?

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Wednesday, March 27, 2013

EBAY - Vol Breaches Annual High Well Ahead of Earnings as Stock Continues to Rise


EBAY closed Monday's session at 52.09, up 1.5% with IV30™ up another 6.2% going from 36.63% to 38.89%. The LIVEVOL® Pro Summary is below.



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eBay Inc. is a global technology company that enables commerce through three reportable segments: Marketplaces, Payments, and GSI.

I noticed eBay tonight perusing the market because of the vol -- namely vol that has reached an annual high well ahead of earnings due out in mid Apr -- very close to Apr expiry. It's certainly expected that vol will rise into the event, which is why the fact that the implied has breached its annual high already caught my attention.

The one-year eBay 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 the rather consistent move upwards over the last twelve months. One year ago, this was a $38.08 stock, so it's up 37% Y-O-Y. For those that haven't looked recently, this is nearly a $70 billion company... eBay! Whoa!

But, unlike so many posts I've published recently, this is a stock that is seeing near annual highs in stock price and is also seeing new annual highs in vol. Let's turn to the one-year IV30™ chart in isolation, below.



We can see that hypnotic vol pattern into and out of earnings, like almost every other firm. But this time things are different. The implied has breached its annual high and we are several weeks away from earnings. As that event nears, unless there is some sort of pre-announcement, the vol will continue to rise. In English, the annual high as of today will likely be shattered by the times earnings roll around in mid Apr. But the stock has been going up, so what's the happs? Honesty, I dunno... But I thought it was interesting enough to write about at 10:22pm EST.

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



Across the top we can see the monthly vols are priced to 40.52% for Apr and 32.91% for May. Although it seems like there is some ambiguity as to when earnings will be announced, the option market reflects a date inside Apr expiry. The 52 wk high in IV30™ is the current level (38.89%) with Apr already priced to 40.52%. My best guess is we could see 50% IV30™ in a couple of weeks, not to mention Apr vol in and of itself (IV30™ is a weighted average of two months).

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Monday, March 25, 2013

Virinet (VHC) - Stock Breaches New Annual Low a Week After Catastrophic Legal Decision; Implied Pops Again.

VHC is trading $19.98, down 8.7% with IV30™ exploding up 22.8%. The LIVEVOL® Pro Summary is below.



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VirnetX Holding Corporation, is engaged in the business of commercializing a portfolio of patents.

I last wrote about VHC on 3-11-2013. You can that post here:
VirnetX (VHC) - Calendar Vol Diff Says One-Thing: Buckle Up, Something Huge is Coming in Five Days or Less

VHC just had an absolutely catastrophic ruling come against them with respect to a patent infringement lawsuit they were prosecuting against CSCO. In short, they lost, even though the firm (VHC) had won something similar against AAPL prior. The stock has cratered since then… But today the stock is down another 10% and has breached an annual low. Further, I found VHC using a real-time custom scan that hunts for vol gainers on the day, and it’s on the very short list.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The goal with this scan is to identify names with rising IV30™ that also have a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The one-year VHC 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).



If we look at that stock chart we can see not only the recent implosion, but the continued stock drop from that implosion (including today’s ~10% drop). The price today is now a new annual low. But, this is also a vol note, so let’s check out the IV30™ chart in isolation for the last year.



That recent dip in the implied occurred after the bad news (court ruling) and it has now turned back up on today’s stock drop. Given the recent news on this stock, I just don’t understand how it could have been priced in the 70% vol range, and quite frankly, 90% doesn’t exactly feel high (though it’s definitely more befitting than 70%).

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



Across the top we can see Apr vol is priced to 94.13% and May is priced to 84.79%. In fact, the entire vol term structure shows reduced risk monotonically was we move to further out expirations. To more clearly demonstrate this phenomenon, I have included the Skew Tab for VHC as of today below.



We can see how the further we go out in time, the lower the vol. For now I say, 90% implied feels a lot more like fair value than the 75% (or whatever) it was a few days ago.

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Friday, March 22, 2013

Eldorado Gold (EGO) - Massive Call Buying in July Changes Skew; Pushes Back Month Vol as Stock Nears Multi-year Lows


EGO is trading $9.80, up 1.5% with IV30™ down 6.4%. The LIVEVOL® Pro Summary is below.



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Eldorado Gold Corporation (Eldorado) is a gold exploration, development, mining and production company. The Company owns and operates mines worldwide.

This is an order flow and skew note -- with action in the July calls. The company has traded 51,851 contracts on total daily average option volume of just 2,405. Calls have traded on a 16.6:1 ratio to puts with the action in the July 10 calls. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the July 10 calls have traded more than 44,000 times on existing OI of just 2,779. When looking down the entire option chain for EGO, I don't see any OI even close to five-figures, so the volume in July calls is enormous for this name. Further I note that while Apr vol is down, July vol is up quite substantially pointing to circumstantial evidence that this is call buying. While the stock volume is higher than average, given that these are 50 delta options, the lion share of the calls are potentially going unhedged.



The Skew Tab snap (below) illustrates the vols by strike by month.



I have included just the July skew and I note simply that the skew flattens at the 9,10, 11 strikes then continues in a normal shape (decreasing vol to OTM calls). In English, the order flow does seem to have an effect on the skew shape.

Finally, the Charts Tab (two-years) is 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 price is near a multi-year low, so the call buying may be opportunistic. The 52 wk range in IV30™ is [32.20%, 59.72%], putting the current level in the 23rd percentile. Certainly July vol is higher than IV30™, but still, this looks like call buying in a depressed stock with depressed vol. At the very least, it looks like vega buying if not directional wrt delta. One to add to the watchlist I would say...

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Thursday, March 21, 2013

Cliff's Natural Resources (CLF) - Stock Continues 80% Collapse; Vol Hits Annual Highs


CLF is trading $20.95, up 1.2% with IV30™ up 7.9%. The LIVEVOL® Pro Summary is included below.



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Cliffs Natural Resources Inc. is an international mining and natural resources company. The Company is an iron ore producer and a producer of metallurgical coal.

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol. But this one is also a stock note -- a collapsing stock note.

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.

The two-year CLF 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 an equity price that has been tumbling downward for two-years. This was a stock trading over $100 less than two years ago and is now at around $20. More myopically, we can see the drop from $36.61 (2-12-2013) the day before earnings to now in the $20 range, so ~40% in a month.

Let's turn to an isolated vol chart, below (one-year, IV30™)



We can see from the chart that the implied is making new annual highs today and has absolutely exploded from a few weeks ago. Makes sense here, the stock is making new lows and the vol is making new highs.

Let's turn to the Skew Tab, below.



We can see that Apr vol is about equal to May ATM but there is an interesting vol diff expansion to the upside. Or said differently, the vol diff diverges to the OTM calls reflecting greater upside risk (potential) in Apr than May.

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



We can see Apr monthly vol is priced to 58.89% while May monthly vol is priced to 59.40%. But, looking to the OTM calls, we see a different story. Though not pictured here, the Apr/May 28 call spread shows 10 points higher vol in Apr (70%) than May (60%). Hmmm...

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Wednesday, March 20, 2013

Pandora (P) - Stock Up 90% in Five Months as Vol Collapses 60% in Two Weeks to Annual Lows


P is trading $13.57, down 1.1% with IV30™ down 8.4%. The LIVEVOL® Pro Summary is below.



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Pandora Media, Inc. (Pandora), is an Internet radio in the United States. As of January 31, 2012, it had over 125 million registered users.

I found this stock using a real-time custom scan. This one hunts for depressed vols. The interesting here is that the stock is on a tear to the upside, yet the vol has totally collapsed.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th 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 one-year P 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).



Looking myopically to Nov of last year, we can see P was trading at an annual low of $7.08. Since that time, the stock is up more than 90%. That includes a run up then a collapse off of earnings on 12-5-2012, then a recovery and a gap up on earnings on 3-18-2013. I note also that both HV measures (HV20™ and HV180™) are considerably higher than the implied. In English, the option market is pricing less risk (volatility) than the stock has realized in both the short-term and long-term.

Since this is a vol note, let’s look at the one-year IV30™ chart in isolation, below.



Check out how high vol got into the last earnings cycle reaching an annual high in IV30™ (114.12%) and since then has completely collapsed to 43% as of this writing, or a 62% drop in the implied in less than two weeks. It’s this incredible vol decline that caught my eye while the stock continues to push higher.

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



Across the top we can see that Apr vol is priced to 42.57% and May vol is priced to 50.47%. Both are extremely low relative to the recent high made in early Mar. This is a truly fascinating phenomenon where the vol is not just depressed, but has literally collapsed as the stock is up 92% in less than six months. A very interesting one to watch.

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Tuesday, March 19, 2013

VIX - If You Believe in Convergence (as History has Proven); Either a Higher Vol of VIX (and Higher VIX) or Lower. What's Your Best Bet of Those Two?


The VIX spot is quoting at 14.63 with IV30™ up 1.9%. The LIVEVOL® Pro Summary is below.



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[VIX] is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge."
Source: Investopedia

This is a follow up to the story I posted on 3-14-2013 (i.e. five days ago). You can read that post here:
VIX - Spot Hits Six Year Lows (2007); What Integer Comes After 2007?... Somethings You May Not Have Realized About the Vol of the Vol.

From 3-14-2013 article:
---------------
This is a depressed price note, which when referring to the VIX is in fact a depressed vol note. Said simply, the VIX is now at levels it has not seen since February 2007. By the way, what's the integer that comes after 2007? I always forget...

The bottom line is, if the VIX continues to move at these HV levels with the spot already at six year lows, we will either see substantially lower VIX than we see now, substantially higher VIX than we see now, or a VIX spot that moves up and down rather abruptly, but stays around this current level. Let's see if someone asks what the next integer after 2013 is in a few years.
---------------


3-14-2013 ---------------------->  3-19-2013
   

We can see the VIX is up 30% in five days and the vol of vol is up 15%. Ah, but the market is down, so that's all that's happening, right?... Well, no... The SPY closed at $156.73 on 3-14, and went ex on a $0.694 dividend on 3-15, and as of this writing is trading at $154.33. In English, the SPY is down just 1% after the divi is put back. So a 1% drop in SPY = 30% rise in VIX and 15% rise in vol of VIX? No... there is something else, and it's more than Cyprus.

Rather than get into a bunch of analysis which would be pretty speculative at this point, I just want to put the same stats and images from 3-14 next to the ones today.

Let's start the two-year Charts Tab, below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

3-14-2013



3-19-2013


Things to note:
1. The rise in the VIX (duh)
2. The rise in the implied of the VIX (also duh)
3. The gap between the IV30™ and the HV180™ has closed a lot BUT the gap between the IV30™ and the shorter-term HV measures has closed much less.  In fact, it's nearly identical for HV20™.


Here are some comps:

3-14-2013
IV30™: 79.53%
------
HV20™: 156.45% (+ 76.9)
HV180™: 105.17% (+ 25.6)


3-19-2013
IV30™: 91.25%
------
HV20™: 168.11% (+ 76.9)
HV180™: 105.56% (+14.3)


So what do all these silly little numbers mean?

The VIX is popping, the vol of the VIX is popping, the market is barely down at all relative to the moves above, and the implied of the VIX is still trailing the historical short-term measures by about the same amount.  So, the VIX is not stabilizing (per HV20™)...  The last time the IV30™ spiked to reach the HV20™ was 12-28-2012, and VIX rose to 22.72% from 15.57% in 17 days.

That means, if you believe in an eventual convergence of HV20™ (the blue-line) and IV30™ (the red-line) as history has proven, then we either see a higher implied vol of VIX (and higher VIX) or lower.  What's your best bet of those two outcomes?

I say a reckoning is coming.  At least in the short-term.

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Monday, March 18, 2013

Op-Ed: Changing of the Guard: Big Banks and Rating Agencies May Be in Trouble.... For Real; CEO's May Go to Federal Prison.


Op-Ed means these opinions are unaffiliated with Livevol.

[Wanna comment on this in a live traders community?]
Livevol Community - Talk, Trade and be Heard.

I'll skip the normal single stock options piece today to draw attention to what may have gone largely unnoticed over the last several days and when taken in conjunction with what's happening behind closed doors with the rating agencies, may signal an unbelievable shift in the Federal Government's dealings with the largest financial institutions in the country (read: JPM, Goldie and the rest) and the largest rating agencies.


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Let's start with the banks (which have more recent news) then move to the rating agencies which I accosted several weeks ago.

But first, as always, my conclusion upfront:

Go get the banks (admitting fraud). Go get the ratings agencies (admitting fraud). And give us our money back. That's what the constituency is calling for, and that's what I think Congress is going to do.   And that amount may be close to a-quarter trillion dollars.

And then... I do believe people may go to Federal prison.

Thursday night, 3-14-2013:
A Senate report found JPMorgan had misled regulators with regard to disclosures (and non-disclosures) surrounding the infamous London Whale trade (Source: Yahoo! Finance Suddenly, Things Are Going “Terribly Wrong” for the Big Banks.

The 300 page+ page report from Congress was just the start as JPM had to sit down in front of Congress and explain what exactly it didn't explain when the original investigation into the "Whale loss" began. Here is some contextual news from the same Yahoo! Source:

---
The 300-page report was just an appetizer for Friday’s hearing, when JPMorgan executives were grilled under oath and former CFO Douglas Braunstein essentially admitted the bank kept regulators in the dark about its mounting losses.

“Things went terribly wrong,” testified Ina Drew, who ran the firm’s Chief Investment Office before stepping down under pressure after the London Whale losses first surfaced last spring. The Senate report and subsequent testimony could expose JPMorgan to additional litigation risk, which is a problem for a number of big banks these days.
---

Let's take one phrase from that testimony: "CFO Douglas Braunstein essentially admitted the bank kept regulators in the dark about its mounting losses."

That would be a knowingly (purposeful) misrepresentation which to the rest of the free world is known as a lie. If the CFO is admitting it, then would it be a stretch that the CEO knew about it as well? No, it would be a stretch to say that he didn't know. The CEO has a name, it's Jamie Dimon.  And he too looks like a liar.  And lying to the Federal Government is a felony if done under oath.

More quotes (same source):

---
The bank’s disclosures “were incomplete, contained numerous inaccuracies, and misinformed investors, regulators and the public” said Senator Carl Levin (D-MI), chairman of the Senate’s Permanent Subcommittee on Investigations.
---

Some people are calling it an oversight of internal controls -- is it possible the internal controls were well in place and this was simply a lie? ...Oh, sorry, I mean, admittedly "[keeping] regulators in the dark," or "misinformed investors, regulators and the public?"

Before anyone gets on a high horse (higher than mine I mean), the whale loss at JPM did not cost US taxpayers any money at all -- there was no bailout nor was one ever discussed or even hinted at, at all.  I'm speaking more to the symptomatic failures / normal MO of  the large banks.  This is just an example -- a very newsy / headline grabbing one.  We need to go back to 2008 and re-open the investigations.

Another worthy read is this Yahoo! article: London Whale Isn’t Dead Yet: JPMorgan Is Out of Control, Rosner Says.

Friday got worse for JPM and Goldie:

---
Indeed, things kept going terribly wrong for JPMorgan on Friday when the Federal Reserve gave only conditional approval to its capital plans. But that wasn’t just a JPMorgan story as the Fed said the same of Goldman Sachs.
---

And then worse yet: Updated 3-20-213

---
The Senate report on JPMorgan Chase's London Whale fiasco revealed that federal regulators secretly downgraded the bank's management rating last summer-a fact kept from investors and the public until [this] week.

The downgrade of JPMorgan's management resulted from the Office of the Comptroller of the Currency finding that the bank suffered from "lax governance and oversight in the chief investment office," as well as other "oversight deficiencies," according to the Senate report.

This news is another blow to JPMorgan, which had long enjoyed the reputation of being one of the best managed megabanks in the U.S. That reputation was already diminished by the derivatives trading losses in its London chief investment office. And then there was that report from the Federal Reserve citing weaknesses in JPMorgan's capital planning process.

The ratings are usually disclosed only to senior bank management and regulators. But the revelation about the downgrade of the management component appears on page 249 of the 300 page Senate report. It was reported Tom Braithwaite and Shahien Nasiripour of the Financial Times on the day it was released.

The Senate report doesn't specify how far the management rating was downgraded, doesn't give the actual score and doesn't reveal the overall score.

Source: CNBC via Yahoo! Finance: JPMorgan Secretly Downgraded by Regulators

---

I love this line: "The Senate report doesn't specify how far the management rating was downgraded, doesn't give the actual score and doesn't reveal the overall score." Come on Congress... How about some transparency...

Then on Saturday the Dallas Fed president (Richard Fisher) spoke at the annual CPAC conference and discussed a plan to break up the "too big to fail" banks. This is the Republican audience, mind you, as the first "C" in CPAC stands for Conservative and the "P" stands for Political. Dems have already taken a stance (albeit a different approach) on punishing the big banks. I believe they call agreement from both sides of the aisle bi-partisan. I know, it's a new term we haven't heard before...

Aaron task says it best, "more than five years after the financial crisis began in earnest, we may finally have arrived at a moment where there’s bipartisan support to “get tough” on the big banks."

What about auditors?

Audit
- an official examination and verification of accounts and records, especially of financial accounts.
- to make an audit of; examine (accounts, records, etc.) for purposes of verification:
Source: Dictionary.com

Try this on for size:

---
You might think that when shareholders pay a firm $105.5 million in audit and audit-related fees for an opinion on whether the financial statements presented fairly, in all material respects, the financial position of JPMorgan Chase & Co. and its subsidiaries, private equity funds, commingled trust funds and special purpose vehicles at year end, that audit firm, PricewaterhouseCoopers LLP, would also be held accountable when so many things about those financial statements and management’s assertions turned out to be so terribly wrong.

Oddly enough, PricewaterhouseCoopers LLP, JPMorgan Chase’s external auditor since 1965, is referred to only once in the US Senate Permanent Subcommittee on Investigations mammoth report, “JPMorgan Chase Whale Trades: A Case History of Derivative Risk and Abuses”. The JPMorgan auditor came up only a few times at the Committee’s hearing last Friday led by Sen. Carl Levin (D-Mich.).

The Senate Subcommittee did not interview auditor PwC while preparing its report, according to a Subcommittee spokeswoman I questioned during a press briefing on Thursday. When I asked why, the question was brushed off. It wasn’t a priority, apparently.

The Senate’s investigation makes several allegations against JPMorgan Chase and its executives for the way its Chief Investment Office managed the synthetic credit portfolio or SCP, a derivatives book later known as the “Whale” trades after it blew up and the bank lost $6.2 billion dollars.

Source: No Accounting For Auditor PwC At Levin's Whale Hearing
---

If regulators really get tough on banks, there is a potential windfall from banks to the government (the American tax payer) of a ~quarter trillion dollars. How the hell did I come up with that number? It's about five years of Net Income from the big boys combined. Five years?... What the hell am I talking about?...

Let's turn to an article I wrote about the rating agencies on Monday, Feb 4.
McGraw Hill (MHP) - Vol Explodes on News of 10-figure Law Suit; S&P Needs to Burn on This One (and so does Moody's)

Quoting my own article:

---
The Justice Department, along with state prosecutors, plans to file civil charges against Standard & Poor’s Ratings Service, accusing the firm of fraudulently rating mortgage bonds that led to the financial crisis, people briefed on the plan said Monday.

Up until last last week, the Justice Department had been in settlement talks with S&P, these people said. But the negotiations broke down after the Justice Department said it would seek a settlement in excess of “10 figures,” or at least $1 billion, these people said, which would wipe out the profits of S.&P.’s parent, the McGraw-Hill Company, for an entire year.

McGraw-Hill earned $911 million last year.

Source: DealB%K via Yahoo! Finance; U.S. and States Prepare to Sue S.&P. Over Mortgage Ratings, written by ANDREW ROSS SORKIN and MICHAEL J. DE LA MERCED.
---

While the news about the rating agencies was being digested, everyone seemed to migrate to $1 billion (when the report from the DOJ simply said 10-figures). Just to be clear, $1 billion is the smallest 10 figure number there is... Just think about that for a sec...

The middle "10-figure number" is $5 billion -- or five-years of Net Income from MHP. Five-years... Five-years...

My opinion (not Livevol's opinion) is that S&P needs to burn on this one (and so does Moody's). I think $1 billion would be a shame -- if it has to be "10 figures", how about this number: $9,999,999,999?" That's also 10 figures.

I went on to state that:

----
"[t]his is an incredible turn of events, as the housing debacle of 2008 for which blame can be levied on several types of firms (and people), had the feel of a "broom and a rug" if you catch my drift... and I know that you do...

But, again, IMHO, the ratings agencies were the worst of them all -- they were the single bottleneck that could have prevented all of it. They are for profit enterprises, but not "for fraud" enterprises -- at least that was what we thought... what we trusted... what we believed... Don't get me wrong, the I-Banks are filthy in the stench that's left behind, but if S&P and Moody's didn't "pay-for-rate," this entire debacle is 75% mitigated (or whatever).
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I felt back then (Feb 4th) that there was a changing of sentiment toward the entire entity that controls... well, everything... That's not the government, as Congress has shown time and again that they control nothing. I mean the bank --> rating agency --> bank circle that ends up being the "take huge bets and keep the upside but cover the downside with tax payers money" circle.

Take the S&P negotiation breakdown with the news out last Thursday, the testimony on Friday (with admitted fraud by the CFO of JPM) and then the CPAC conference on Saturday, things are changing. And why?... Here's the big secret... are you ready?

Because incumbents in Congress can keep their jobs when they do what their constituency asks them to do. And now... it's bi-partisan.

Go get the banks (admitting fraud). Go get the ratings agencies (admitting fraud). And give us our money back. That's what the constituency is calling for, and that's what I think Congress is going to do.   And that amount may be close to a-quarter trillion dollars.

And then... I do believe people may go to Federal prison.

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This is trade analysis, not a recommendation.

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Thursday, March 14, 2013

VIX - Spot Hits Six Year Lows (2007); What Integer Comes After 2007?... Somethings You May Not Have Realized About the Vol of the Vol.


VIX spot is quoting at trading $11.54, down 2.4% to with IV30™ up 2.3%. The LIVEVOL® Pro Summary is below.



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[VIX] is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge."
Source: Investopedia

This is a depressed price note, which when referring to the VIX is in fact a depressed vol note. Said simply, the VIX is now at levels it has not seen since February 2007 (according to Yahoo! Finance -- and yes LIVEVOL® has the data, but I was too lazy to go into our tables). By the way, what's the integer that comes after 2007? I always forget...

Let's look to the two-year Charts Tab, below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the price side we can see, well, VIX is at multi-year lows. The largest spikes were in 2008, but we can see it hitting over 45% in just this two-year chart.

On the vol side, I found a very interesting phenomenon. Let's turn to the two-year vol chart of the VIX (the vol of the vol) with just IV30™ and HV180™.



We can see a persistent pattern over the last two years where the short-term implied trades below the long-term historical realized vol. Or said differently, the pink line is usually above the red line. That certainly is the case now. But, let's look back to the original chart, above. Note how much higher the HV20™ is than the IV30™ and HV180™.

IV30™: 79.53%
HV180™: 105.17%
HV20™: 156.45%

So putting these numbers into English: The last month of volatility in the VIX spot is more than double what the options are pricing for the next month. With VIX at six-year lows and the movement in the VIX about double the forward looking vol, that is worth a note.

Am I number hunting for a story? Not really... Here are some more HV levels:

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IV30™: 79.53
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HV30™: 139.35%
HV60™: 127.60%

For completeness, I have included the Options Tab, below



Across the top we can see Apr is priced to 79.53% while Jun is priced to 67.91%. Note that Jun umber is even lower than the IV30™.

The bottom line is, if the VIX continues to move at these HV levels with the spot already at six year lows, we will either see substantially lower VIX than we see now, substantially higher VIX than we see now, or a VIX spot that moves up and down rather abruptly, but stays around this current level. Let's see if someone asks what the next integer after 2013 is in a few years.

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Wednesday, March 13, 2013

Caesers Entertainment (CZR) - Vol Pops as Stock Continues 130% Rise


CZR is trading $15.52, up 8.2% with IV30™ up 13.2%. The LIVEVOL® Pro Summary is below.



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Caesars Entertainment Corporation provides casino entertainment services.


This is a quick note on some exploding vol in CZR. I found this stock using a custom scan searching for names where IV30™ is up at least 10% on the day. The scan details are below with a snapshot if you want to build it yourself in Livevol® Pro.

Custom Scan Details
Stock Price GTE 10
Average Option Volume GTE 1,200
Days After Earnings GTE 5 and LTE 60
IV30™ Percent Change GTE 10%
IV30™ GTE 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.



The CZR one-year 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 the awesome price appreciation of late. On 12-28-2012 this was a $6.73 stock. As of today it is up more than 125% from that level. We can see a gap up pre-earnings, then another abrupt trend up after the earnings announcement. Then, there's today -- the stock is up another 8.2% and the vol is following, up 13.2%. Still, the IV30™ is just in the 34th percentile (annual), and given all that has happened of late, that is noteworthy, IMHO.

Finally, let's turn to the Options Tab.



Across the top we can see not only that Apr vol is up, but even the two and a half day options in Mar are up, and quite substantially. This is a compelling one to examine, even for analysis in Mar positions.

This is trade analysis, not a recommendation.

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