Friday, January 10, 2014

Express (EXPR) - Option Market: Risk in Jan Nearly Unprecedented; Calendar Diff Opens

EXPR closed Friday trading at $19.02, up 2.34%. The LIVEVOL® Pro Summary is below.

Provided by Livevol

Express, Inc. ( Express) is a specialty apparel and accessory retailer offering both women's and men's merchandise. The Company operates in brick and mortar retail stores and the e-commerce Website.

This is a pretty interesting calendar spread story here, with a stock that just gapped down and a vol difference between the front two months that is quite large. EXPR came up on a real-time custom scan that hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

Provided by Livevol

We can see the rather large vol difference between the Jan and Feb options. I do also note, however, that the skew shape is the same for both expiries. So, in English, while the option market reflects substantially higher risk in the immediate-term, it does not show a bias to one direction or the other when comparing months. The option market reads: "Risk Soon."

Now we can turn to the Charts Tab (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 that ugly gap down off of earnings from $24.67 down to $19.00 in a single day. From that drop though (12-4-2013), the stock has been in a pretty clean equilibrium. In fact, it has moved just $0.02 close-to-close from that drop to today. So what?... Well, the volatility in Jan is elevated, so while the stock has been in equilibrium, the option market kinda disagrees.

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

Provided by Livevol

Across the top we can see that Jan vol is priced to 78.69% while Feb is priced to 42.55%. Whoa... The 52 wk range in IV30 for EXPR is [26.33%, 71.67%], so that ~79% number in Jan is quite elevated for this company and again, it's after earnings.

Time to pay attention to EXPR... at least for a little while.

This is trade analysis, not a recommendation.

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