Monday, September 30, 2013

Yahoo! (YHOO) - Stock in Play; Volatility Hits Annual High; Are there Two Volatility Events Coming?

YHOO is trading $33.44, down 0.33% with IV30™ down 0.9%. The LIVEVOL® Pro Summary is below.

Yahoo! Inc. (Yahoo!) is a digital media company. Through the Company’s technology and insights, Yahoo! delivers digital content and experiences, across devices and globally. Yahoo!provides online properties and services (Yahoo! Properties) to users, as well as a range of marketing services designed to reach and connect with those users on Yahoo! and through a distribution network of third-party entities (Affiliates).

I found this stock using a real-time custom scan. This one hunts for elevated vols. Note that YHOO is in the 99th percentile, so essentially an annual high.

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

The two-year YHOO 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 two phenomena, both equally abrupt.

(1) For the first year of the chart, YHOO stock was simply stuck in neutral. There were takeover rumors and new top executives and all that “stuff,” but the stock price didn’t budge.

(2) Over the last year, the stock has exploded from $15.82 to now above $33, so more than a double. Incredible considering the vultures were hovering not too long ago.

Before we look myopically at IV30™ over the last year, check out the IV30™ for the first part of the chart. We can see that as the stock stayed in “nowhere” land, the implied did begin (and continue) to fall. The IV30™ was over 73% two-years ago, and it’s now down to the 40% range. But, that long-term view does miss an important recent trend.

Let’s turn to the one-year IV30™ chart in isolation, below.

We can see that YHOO implied has spiked of late. There is an earnings release coming out in a few weeks (give or take), so a part of that vol increase is simply a reflection of the risk in the earnings event. But, a part of that risk is something else. YHOO is already at an annual high in IV30™ and we have quite some time before earnings (double check that). The vol story gets even more interesting when we look at the skew.

The Skew Tab is included below.

Two things to note here:
(1) The ATM vols for Oct and Nov are basically right on top of each other (the yellow and green curves are touching). This either means that the date of earnings is still ambiguous as to whether it will be in Oct or Nov, or there is another volatility event in Oct or Nov (whichever does not have earnings). Pretty cool.
(2) I note that both Oct and Nov have a parabolic skew, so the risk in YHOO that is reflected y the option market is two-sided – both downside risk and upside potential. Not too shabby for YHOO to reflect upside potential give a 100% return in the last year.

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

Across the top I note that Oct vol is priced to 40.67% while Nov vol is priced to 40.1%. That reads as ambiguity to the earnings date, or as I said before, a second volatility event. YHOO is in play.

This is trade analysis, not a recommendation.

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