Monday, December 9, 2013

CenterPoint Energy (CNP) - Volatility Explodes to Multi-year Highs But This Isn't an Earnings Game

CNP is trading $23.29, down small with IV30™ ripping yet again, up 21.5%. The LIVEVOL® Pro Summary is included below.

Provided by Livevol

CenterPoint Energy, Inc. is a domestic energy delivery company. The Company’s business segments include Electric Transmission and Distribution, Natural Gas Distribution, Competitive Natural Gas Sales and Services, Interstate Pipelines, Field Services and Other Operations.

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.  In short, the implied in this name has been exploding to multi-year highs and it's time to take a look.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ LTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The two-year CNP 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).

Provided by Livevol

On the stock side we can see how the price rose from ~$18 in Jan 2012 to as high as $25.22 in summer of this year.  More recently we can see a stock drop from ~$25 to now just over $23.

But when it comes down to it, this is a volatility note, so let's dig in. Let's turn to the two-year IV30™ chart in isolation, below.

Provided by Livevol

Check out that recent IV30™ spike from 19.77% on 11-21-2013 to now 36.80% on 12-9-2013.  That's an 86% rise in the short-term implied in about three weeks.  Even more astonishing is that the IV30™ for this firm reached 7.6% in Sep of 2012.

Ok, so all of this is earnings related, right?  Well, not really.  The last earnings report was 11-6-2013 and the next release is due out sometime in February.  So, this has nothing to do with an earnings report due out in the next 30 days, at least on the surface.

So what is going on?

To start, I see an article posted on 12-3-2013 with the headline "CenterPoint Energy Stock Getting Very Oversold."

Here's the snippet:

In trading on Tuesday, shares of CenterPoint Energy, Inc (NYSE: CNP) entered into oversold territory, changing hands as low as $22.92 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

In the case of CenterPoint Energy, Inc, the RSI reading has hit 29.5 — by comparison, the universe of energy stocks covered by Energy Stock Channel currently has an average RSI of 47.0, the RSI of WTI Crude Oil is at 51.8, and the RSI of Henry Hub Natural Gas is presently 65.4.

Source: Forbes via Yahoo! Finance; CenterPoint Energy Stock Getting Very Oversold, written by Energy Stock Channel, Contributor.


Apart from that, here's the news on the day the implied took one of its big jumps:


CenterPoint Energy (CNP), OGE Energy (OGE) and ArcLight Capital Partners, LLC announced today that Enable Midstream Partners, LP has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission related to the proposed initial public offering of its common units representing limited partner interests worth approximately $500M. The offering is expected to occur in the first quarter of 2014.

Source: TheFlyOnTheWall via Yahoo! Finance; Enable Midstream files registration for $500M IPO.


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

Provided by Livevol

Across the top we can see that Dec vol is priced to 39.15% (a rip roaring multi-year high) while Jan'14 is also quite elevated at 35.19%.  Interestingly, the next earnings release should be after Feb expiry, by look at May vol... it's just 31.71%.  So what?  The what is that the current risk reflected in the option market from CNP shares is at multi-year highs and the near-term is seen as substantially more risky than the upcoming earnings event (or any earnings event in the last two-years).

Keep an eye on this one.

This is trade analysis, not a recommendation.

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