Tuesday, April 16, 2013

Cardinal Health (CAH) - Vol Breaches Annual High in Explosive Trend; Earnings, Credit Watch and Maybe Something Else?

CAH is trading $42.85, down 0.4% with IV30™ up 0.3%. The LIVEVOL® Pro Summary is below.


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Cardinal Health, Inc. is a healthcare services company providing products and services that help pharmacies, hospitals, surgery centers, physician offices and other healthcare providers.

I found this stock using a real-time custom scan. This one hunts for elevated vols. The phenomenon I’m following in this name is that the implied has hit an annual high yet earnings are still several weeks away. Or, In English, the vol has breached a new high and is likely to continue to do so every day for the next three weeks unless there’s “something else” due before earnings.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 25
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 one-year CAH 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 sustained period of price appreciation broken by an abrupt gap down on 3-19-2012. The news driving that move stemmed from the revelation that CAH had lost its contract with Walgreens which then turned into a credit review from Moody’s. Now that sounds like a risky event, but note where the IV30™ was at the time (the red-line in the bottom portion of that chart above).

And today… vol as continued its upward march. Let’s turn to a one-year IV30™ chart in isolation, below.

Check out that rise in the implied – quite abrupt. Further, check out the vol levels in the prior earnings releases (the blue “E” icon). We can see how much higher IV30™ is right now than it was for any other earnings release and we’re still several weeks away from that volatility event. It feels like there is another event that is pushing the vol – one that may be due out before earnings. Either that, or there is a great deal of trepidation about the earnings call given the Walgreens news.

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

Across the top we can see the vols by month are 19.32% for Apr and 27.58% for May. In English, the “event,” whether it’s earnings or something else, is coming after Apr expiry... or so reflects the option market.

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