Friday, August 2, 2013

Mosaic (MOS) - Volatility Explodes; Stock Collapses on Cartel News; Calendar Vol Diff Opens

MOS is trading $41.88, up 1.92% with IV30™ down 4.1%. The LIVEVOL® Pro Summary is below.

The Mosaic Company (Mosaic) is a producer and marketer of combined concentrated phosphate and potash crop nutrients for the global agriculture industry. It is a single source supplier of phosphate-and potash-based crops nutrients and animal feed ingredients.

I found this stock using a real-time custom scan. This one hunts for calendar spreads between the front two monthly expiries. While there is a nice calendar diff to examine, this one has a much bigger underlying story.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

Let’s start with the Skew Tab to examine the month-to-month and line-by-line vols.

We can see two phenomena:
(1) Aug vol is elevated for all strikes relative to Sep.
(2) Aug vol has a decidedly upside bend to the skew, reflecting greater upside potential in the near-term than downside risk.

But there’s a huge story underlying this firm and many others in the potash biz. On 7-30-2013, in news from The Motley Fool I found that the world’s largest Potash producer broke up a cartel with Belarus that controlled almost 50% of global exports. The reaction was been abruptly poor for MOS – ~20% drop or $10 in stock price as potash price concerns are running wild.

The two-year MOS 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 this was a $68.84 stock two years ago. But really, the story is more myopic than that. Checkout that collapse on 7-30-2013 I referred to. Yikes…

The stock drop was met with a huge amount of confusion or at least lack of clarity and we can see that in the volatility. I have included the two-year IV30™ chart below in isolation.

Two phenomena here strike me as noteworthy:

(1) The obvious explosion off of the cartel news. That’s a stock drop and a vol pop and it means risk (read: uncertainty) is here for now.
(2) Although the level in the implied is an annual high (after the cartel news), this name has actually seen higher levels of volatility in the last two years. In fact, the vol has been substantially higher, reaching just under 73% in October of 2011 (compared to 46.5% right now).

So what? Well... the uncertainty from the news hurt the stock, popped the vol, then today sort of gave way to calmer heads as the implied did dip a little. I just note that this level of vol is not unprecedented and there is grounds to believe it could go even higher. But obviously there’s no way to predict the future. In my opinion, closure has not come in on the news and that means equilibrium has not been reached and that means risk…

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

Across the top we can see the monthly vols are priced to 50.13% in Aug and 41.68% in Sep. It’s that volatility divergence that triggered the calendar spread scan. But as I’ve said two times before and now for a third, there’s a lot more to this than just a calendar vol diff.

This is trade analysis, not a recommendation.

Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

No comments:

Post a Comment