Wednesday, October 23, 2013

Safeway (SWY) - Stock Pops to 5-year high on Takeover News; Implied Volatility Rockets Up 40%

SWY is trading $35.79, up 8.8% with IV30™ spiking up 42.0%. The LIVEVOL® Pro Summary is below.

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Safeway Inc. (Safeway) is a food and drug retailer in North America. As of December 29, 2012, the Company had 1,641 stores. The Company’s United States retail operations are located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. SWY is the top one on th list, and it has a stock story attached to it as well.

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 HTZ 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 remarkable price appreciation not just over the last two-years but over the last two-months. Even over the last year, this stock has risen from ~$16 to now over $35, so more than a 100% rise in an $8 billion market cap company. The high reached today is not just a two-year high, but more than a five-year high, dating well back into 2008.

So what's going on today?... It's buyout rumor time... here is a quick news snippet:

Safeway Inc. shares jumped Wednesday on reports that several firms are considering a buyout of the supermarket chain.

THE SPARK: Reuters reported Tuesday that a handful of buyout firms, including private equity firm Cerberus Capital Management LP, are exploring a full or partial buyout of Safeway. The report, citing unnamed sources familiar with the matter, said it could potentially shape up to be one of the largest leveraged buyouts since the financial crisis.

THE BIG PICTURE: Safeway, based in Pleasanton, Calif., declined to comment on the report.

The company, like many mainstream grocers, is facing intense competition from dollar stores and big-box retailers such as Target Corp. and Wal-Mart Stores Inc., all of which increased their emphasis on food amid the recession.

Source: AP via Yahoo! Finance; Safeway shares jump on buyout report

not only is the stock popping on the news, but so is the volatility. Let's turn to a two-year IV30™ chart in isolation, below.

I have circled the IV30™ pop today in yellow. before thisnews, the implied in SWY was actually quite low as the stock price was making its upward march. The news of a potential buyout has changed all of that as the IV30™ has spiked up more than 40%.

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

Across the top we can see the monthly vols are priced to 37.95% for Nov and 37.88% for Dec.  It's fascinating that the vol pop is essentially equal in the front two-months.  the option market reflects elevated risk from this news for an extended period of time, rather than a short-term event.

This is trade analysis, not a recommendation.

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