Friday, August 9, 2013

Hewlett-Packard (HPQ) - Volatility Pops to New Annual Highs; Earnings Risk is Elevated Based on Recent Past

HPQ closed Thursday trading at $26.87, up 0.7% with IV30™ popping up 16.7%. The LIVEVOL® Pro Summary is below.

Hewlett-Packard Company (HP) is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the Government, health and education sectors.

I found this stock using a real-time custom scan. This one hunts for elevated vols. Now HPQ has earnings due out on 8-21-2013 (AMC), but it has already breached an annual high in IV30™ and we still have two weeks to go before earnings. All this in the face of a VIX spot at 12.73%... Weird…

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

The one-year HPQ 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 I see quite noticeably that each of the last four earnings cycles (the blue ‘E’ icon represents earnings) have produced a stock gap. Oddly, the first two were down and the last two were up. The earnings release on 11-20-2012 pushed the stock to an annual low of $11.11. Since then the stock has risen 150% -- so, it’s been an impressive turnaround.

But it’s the volatility that caught my eye, so let’s turn to the one-year IV30™ chart, below.

We can see the spikes from the prior earnings cycles (again, look at the blue ‘E’ icons). But now look at the current vol – it has eclipsed those prior highs and we have quite some time before the earnings announcement. My best guess is that the volatility is elevating so early and so much due to the behavior of stock for the last several earnings reports as well as the meteoric climb since 11-20-2013. In this case, a rising vol to a new high well ahead of earnings does make sense.

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

Across the top we can see that Aug monthly vol is priced to 30.73% while Sep vol (with earnings) is priced to 48.83%. The risk in HPQ is elevating quickly and to new annual highs and given the realities of the stock price movement from recent earnings cycles, I get it… Let’s watch this one into and out of earnings…

This is trade analysis, not a recommendation.

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