Monday, August 5, 2013

YELP - Stock Erupts (Twice) on Earnings; Volatility Dives then Pops. Something’s Goin' On

YELP closed Friday trading at $57.02, up 10.7% with IV30™ popping 29.2%. The LIVEVOL® Pro Summary is below.

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I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. But, there is so much more going on with this company beyond the one-day vol pop.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

Let’s start with the six-month Charts Tab below. The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock is up from ~$20 just six months ago and Y-O-Y is up from $22. So, rip roaring returns to say the least. But the stock movement went from deliberate and up, to abrupt and up in the last two days. The first catalyst was earnings – Wall St. liked it… a lot. The stock popped from $41.80 to $51.50 or ~25% in a day. Very nice. We can also the implied dropped after earnings – very normal and expected.

But then… today happened. The stock went from $51.50 to $57.02, making the two day gain more than 36%. But here’s the really odd part… Not only was the reaction to earnings a stutter-step, the vol reversed its decline and popped back up nearly 30%... huh?

A great way to examine this vol crush and rise is through the Skew Tab. First, let’s turn to the Skew Tab as of the close on Thursday.

We can see the front month ended right on top of the back month, crashing down from its highs pre-earnings. But then… today happened…

Let’s turn to the Skew Tab as of the end of trading on Friday.

All of a sudden the front month has popped right back up, almost like its pre-earnings levels. Something happened today that not only pushed the stock higher (after a 25% pop he day before), but now reflects more risk in the option market. This one, I must say, is an odd ball. I haven’t seen many of these reactions in a non-bio-tech in a while. So, good or YELP stock, but more risk indeed.

Finally, let’s turn to the Options Tab, below.

On close of Friday we can see Aug vol is priced to 69.06% while Sep is priced to 63.33%. Here’s how that pair of months traded for the last three days (on close).

Aug: 95.69%
Sep: 65.83%

Aug: 50.91%
Sep: 51.15%

Aug: 69.06%
Sep: 63.33%

Look at the volatility level for the Sep options the day of earnings and today. They’re almost unchanged. This elevated risk in YELP has permeated not just the short-term (Aug vol) but also the intermediate-term (Sep vol). Something is up, and it’s more than earnings, the stock price and the volatility. I’d keep an eye on this one.

This is trade analysis, not a recommendation.

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