Thursday, April 11, 2013

Thermo Fisher Scientific (TMO) - Stock at Multi-year Highs; Vol at Annual High; Earnings Vol Priced Below Immediate Term.. Something is Coming...

TMO is trading $80.00, down 1.6% with IV30™ up 1.8%. The LIVEVOL® Pro Summary is below.


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Thermo Fisher Scientific Inc. (Thermo Fisher) is engaged in serving science. It operates in three segments: Analytical Technologies, Specialty Diagnostics and Laboratory Products and Services.

I found this stock using a real-time custom scan. This one hunts for elevated vols. The vol is hitting an annual high while the stock is hitting multi-year highs. At the same time, there is a calendar vol diff where Apr is more expensive than May -- but earnings are in the May expiry... This is a cool one...

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
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 two-year TMO 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 that other than the little blip today, the price has basically been headed straight up and is in multi-year high territory. But, this is a vol note, so let's look at the one-year IV30™ chart in isolation.

We can see how elevated the implied is right now -- an annual high and in quite dramatic fashion. But here's the thing... earnings are likely due out after Apr expiry. For the last few years earnings were reported on:

Apr 25, 2012
Apr 27, 2011
Apr 28, 2010

Since Apr expiry falls on Friday the 19th (officially Saturday the 20th), it's likely that earnings are due out after Apr. But... look at the Skew Tab, below:

We can see how elevated Apr is to May. So as the stock is reaching multi-year highs and the vol is breaking an annual high, the earnings vol (risk) is priced less than the short-term risk to Apr expiry. Very, very interesting.

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

Across the top we can see Apr is priced to 43.01% while May is priced to 31.35%... To say the least, that's odd considering the likely earnings date.

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