Monday, May 6, 2013

AOL - Stock Breaches Annual High in Vol; Flirts with Annual High in Price; Earnings Due out in Two Days

AOL is trading $40.82, up 1.2% with IV30™ up 5.1%. The LIVEVOL® Pro Summary is below.


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AOL Inc. (AOL) is a global Web services company with a range of brands and offerings and a global audience. The Company's business spans online content, products and services, which it offers to consumers, publishers and advertisers. Its business operations are focused on AOL Properties and Third Party Network.

I found this stock using a real-time custom scan. This one hunts for elevated vols. AOL does have an earnings release in a day, so the elevated vol isn’t a surprise. But, it’s the level of the vol and the reaction of the stock to the prior earnings releases that caught my attention. Add to the mix a multi-year high in stock price and we have a compelling story.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year AOL 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 very nice price appreciation. This was a $19.35 stock two-years ago and it’s now trading more than 100% higher. In fact, the stock hit a low of ~$10 after an earnings release in early Aug of 2011, and from that point the stock has quadrupled. As of right now, the stock is near a multi-year high.

In fact, it’s the abrupt moves this stock makes off of earnings that caught my eye. Check out the blue “E” icons which denote earnings and how often the stock gaps when the new is released.

Let’s turn to the one-year IV30™ chart below to isolate the vol movement.

Again, the blue “E” icons represent earnings. Now take a look at the trajectory of the IV30™ of late into the earnings announcement in a day (two days but earnings are reported BMO). The vol is well into annual high territory and continues its rise today. The abrupt reactions to past earnings could be a part of this slightly frenzied vol in AOL along with the multi-year high in stock price. The option market reflects more risk in the next 30 days than it has for the last year ad that risk is tied directly to earnings. My best guess is that vol will continue to rise tomorrow and we will see yet higher annual highs, perhaps in the 57%-60% range in IV30™.

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

Across the top we can see the monthly vols are priced to 69.49% for May and 43.46% for Jun. Obviously that vol diff is earnings related. Though not pictured here, I note that the May 50 calls are dime bid and the May 32 puts are nickel bid. It feels like the option market is bracing for stock moving news come earnings. We’ll see…

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