Friday, May 24, 2013

MBIA (MBI) - Vol Implodes to Multi-year Lows; Is This a New Company Now that BAC Settlement is Over?

MBI closed on Thursday at $14.80, up 1.2% with IV30™ down 4.8%. The LIVEVOL® Pro Summary is below.


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MBIA Inc. (MBIA) together with its consolidated subsidiaries, operates the financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: United States public finance insurance, structured finance and international insurance, and advisory services.

I found this stock using a real-time custom scan. This one hunts for depressed vols. But what we see here on the vol side is truly breathtaking.

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

The two-year MBI 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 the price has risen from just under $9 to now just under $15 in two-years. More myopically we can see that massive gap up recently on 5-6-2013 from $9.83 to $14.29 or a 45% rise in one day. Here's the news that drove that stock reaction:

Shares of bond insurer MBIA soared Monday on news that it has reached a settlement with Bank of America in a long-running dispute over who would be on the hook for faulty mortgage securities issued during the U.S. housing boom.

MBIA will receive $1.6 billion in cash from Bank of America and a $500 million line of credit as part of the settlement, which awaits approval from New York state regulators, the companies announced Monday.

Source: CNN Money via yahoo! Finance: MBIA soars 45% on reports of BofA settlement, written by Chris Isidore.

So that was hugefor MBI, no doubt. But, let's take a closer look at the vol. I have included the two-year IV30™ chart in isolation below.

We can see a multi-year high in the implied of over 130% and as of this writing (close on Thursday), the options reflect the lowest risk in two-years with IV30™ closing at just over 40%. Wow...I know earnings just came out, and I know they are now cash rich, solvency isn't an issue, blah, blah, blah, but that is some low vol for MBI.

Of course, there is totally reasonable argument that MBI, now that the BofA case is settled, is a totally different entity. Literally, totally different risk paradigm now-- where solvency issues are a thing of the past, and the firm can now be judged on it's business model rather than it's liquidity crunch. it's an interesting perspective either way:
(1) MBI vol is waaaaay too low
(2) We have no idea what MBI vol should be, and perhaps it's more like a 20%-30% vol firm now that this news is done and dealt with.

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

Across the top we can see the monthly vols are priced to 40.04% for Jun and 39.99% for Jul. So, this is kind of the new normal for MBI, I guess... I guess... I guess?

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