Monday, October 7, 2013

United Technologies (UTX) - Volatility Breaches Annual High Well Ahead of Earnings; But is it Still Too Low?

UTX is trading $104.55, up 0.27% with IV30™ down 7.2%. The LIVEVOL® Pro Summary is below.


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United Technologies Corporation (UTC) provides high technology products and services to the building systems and aerospace industries worldwide. The Company operates in six segments: Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky.

I found this stock using a real-time custom scan. This one hunts for elevated vols. Normally, I don’t bother looking at stocks with IV30™ in the 20% range, they’re just kinda boring. But UTX is unique for a few reasons:

(1) It has breached an annual high in IV30™ as of today
(2) It has seen IV30™ levels well over 35% in the last two-years
(3) It has earnings due out soon
(4) It sits in an industry that is directly affected by government shutdown

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year UTX 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 rise from $71.46 two-years ago to now over $100 – not too shabby for a $100B market cap 20% implied vol stock. I do note the stock price movement recently – check out that drop from the two-year high of $112 on 9-19-2013 to now $104. This government shutdown does affect the players in the defense industry.

But, ultimately, this is a vol story, so let’s take a closer look at the IV30™ in isolation, below.

This chart shows two-years of history. I have drawn that horizontal yellow line back for one-year, so we can clearly see that the level reached today is an annual high. That’s interesting given that earnings are not due out until 10-22-2013 (BMO), which is after Oct expiry. In English, the vol will possibly (likely?) rise as that earnings event approaches. Given that and the potential gov’t shutdown, I actually feel like 23% vol is to low even though it’s an annual high. How’s that for counter intuitive?

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

Across the top we can see the monthly vols are priced to 22.16% for Oct and 24.00% for Nov. Let’s see if the stock moves more than the implied vol reflects. My guess is yes... But historically, that guess would have been wrong.

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