Tuesday, October 1, 2013

Family Dollar (FDO) - Volatility reaches Annual High Well Ahead of Earnings; Will Earnings Gap Pattern Continue?

FDO is trading $72.27, up 0.4% with IV30™ down 0.7%. The LIVEVOL® Pro Summary is below.

I found this stock using a real-time custom scan. This one hunts for elevated vols. I note that while FDO has earnings due out on 10-9-2013 (BMO), the implied is already trading in the 99th percentile for the year.

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

The two-year FDO 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 a nice run up in the price -- this was a $50.01 stock two-years ago and is up more than 40% since then.  But if we look a little more closely, we can see the stock was actually trading at ~$53 earlier this year, so that 40% rise is not just a two-year return, but also a return from the lows of this year.  I note that two of the last three earnings cycles (the blue "E" icon represents an earnings date) have resulted in pretty large gap moves. On 1-3-2013 the stock gapped down ~ $9 and on 7-10-2013 the stock gapped up ~$5.

Let's turn to the one-year IV30™ chart in isolation, to look at the volatility.

Check out how the implied has been rising into this earnings release -- that part is "normal."  But also note how high the implied has reached -- it's essentially at an annual high more than a week ahead of earnings.  Perhaps the prior earnings moves are pushing this volatility, perhaps it's the government shutdown.perhaps it's both or neither or any combination.  What we do see for certain is, FDO is at an annual in the implied and there's a good chance it continues to rise into earnings (unless there's a pre-release of news or whatever).

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

Across the top we can see the monthly vols are priced to 43.72%, 34.65% and 31.53% for Oct, Nov and Jan'14, respectively.  That elevated vol in Oct is due to the earnings release.

This is trade analysis, not a recommendation.

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