Thursday, October 24, 2013

Finisar (FNSR) - Gotcha! Volatility Spikes Up as Stock Dips; Has the Volatility Trend Been Broken?

FNSR is trading $24.32, down 5.9% with IV30™ up 15.3%. The LIVEVOL® Pro Summary is below.


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Finisar Corporation develops and provides fiber optic subsystems and network performance test systems which enable data communications over local area networks, or LANs, and storage area networks, or SANs. The Company is focused on providing optical subsystems for networking and storage equipment manufacturers that develop and market systems based on Gigabit Ethernet and Fiber Channel protocols.

I last wrote about FNSR on 9-23-2013, noting that the volatility had gotten quite depressed to the point where it had breached an annual low with an IV30™ of 36.88%. You can read that post by clicking on the title, below.

9-23-2013: Finisar (FNSR) - Volatility Breaches Multi-year Lows as Stock Trades at Multi-year Highs

Today I found FNSR using the real-time custom scan that hunts… you guessed it… for volatility gainers on the day.

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

The two-year FNSR 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 beautiful price appreciation over the last year (ish) from an annual low of $10.95 to now ~140% higher. Wow… We can see to the far right of the stock chart that FNSR hit a multi-year high just a few days ago, but has fallen off since then, with a rather abrupt 6% drop today. I do note that the stock traded as low as $22.83 today, so it has rebounded substantially off of the day lows.

But this is a volatility note, so let’s turn to the two-year IV30™ chart in isolation, below.

I note three phenomena here:
(1) As I have shown with that yellow line, the IV30™ has systematically been dropping for this firm over the last two-years. This is a time period when the stock has been rising (in general).
(2) The peak volatility into earnings (see the green circles and note that the blue “E” icons represent earnings dates) has been trending lower as well. The move hasn’t been monotonic, but it is noteworthy, with the first earnings in this chart showing an IV30™ of 99.73% and the last earnings showing an IV30™ of 58.58%.
(3) Check out the vol pop today (the far right of the chart). FNSR had been at multi-year lows in the implied until the last few days. The stock has dropped and the vol has risen.

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

Across the top we can see the monthly vols are priced to 45.59%, 51.58% and 47.16% for Nov, Dec and Jan’14, respectively. Dec expiry has an earnings event embedded in it. I would watch that level – the question is whether that volatility will end the trend of lower peaks of IV30™ into earnings (as I suspect it may well) or if it will continue the trend. If it continues the trend and ends up in the low 50% range (or lower), that would be an interesting one to watch for potentially under priced earnings volatility.

This is trade analysis, not a recommendation.

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