Monday, January 13, 2014

GOGO - UPDATE: Risk Highly Elevated and Moving to All-time Highs; Upside Tilt Still Apparent.

GOGO is trading $23.04, up 1.4% in the face of a big down day (thus far) in the broader market, with IV30™ up 1.2%. The Symbol Summary is included below.

Provided by Livevol

This is a follow up to the article I posted on 1-6-2014. You can read that post by clicking on the title below.

GOGO - Volatility Rising, Skew Shifting to Upside; Is GOGO About to Move-Move?

The main takeaway from that article was pretty simple, and I quote:

"As of right now, the implied in GOGO is near an all-time high, or in English, the option market reads: "Risk Ahead." Much of that may be due to earnings, but the trend is not just earnings.

In English, there is a slight paradigm shift as to how the option market reflects risk for GOGO. Specifically:

1. It's riskier right now than it has been.
2. There seems to be more upside risk (potential) than downside.

Look for earnings dates, as this can occur with that event."

The Symbol Summary from a week ago looked like this:

Provided by Livevol

So the stock and volatility are down small from a week ago...

Let's turn to the Charts Tab below (stock price only).

Provided by Livevol

We can see that pretty ugly trend in the underlying, with the stock having fallen from $35.77 (all-time high) now down into the $23 level.  That stock trend was actually preceded by a volatility trend.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

That red line is the IV30™, and we can see how the trend has been pretty linear, and up.  I have drawn in that yellow arrow to draw out the upward trend.

In English, the option market reflects consistently increasing risk in the stock price, which is pretty unusual for an IPO where volatility usually starts pretty high, then an equilibrium is reached in the coming quarters.

I have also drawn in those two green lines.  The top green line is the all-time high in IV30™ and the bottom green line is the level as of this writing.  The point: we can see very easily how close GOGO is to a new all-time high in risk as reflected by the option market.

As we approach earnings, as long as there are no major pre-announcements, etc, I do believe we will see that IV30™ go above the all-time high, and perhaps well into triple digits.

The Skew Tab snap (below) illustrates the vols by strike by month and I have included both the Skew Tab from today and from last week, respectively.


Provided by Livevol


Provided by Livevol

That crazy parabolic skew in Jan is more a reflection of option expiry coming in five days than any real change in the risk profile as reflected by the option market.  The real point here is simply that the option market continues to show extremely high overall risk for GOGO into earnings and a noteworthy upside tilt.

The option market still reads: Very High Risk.  Slight Upside Tilt.

For short-term holders of GOGO (speculators), the option market may be a signal of risk ahead (up or down).  For longer term holders of GOGO, we can turn to the Options Tab for more information.

To read more about skew, what is and why it exists you can click the title below:
Understanding Option Skew -- What it is and Why it Exists.

Finally, the Options Tab is included below.

Provided by Livevol

Note that Feb vol is priced to 91.19% while May is priced to 86.13% and Aug is priced 82.98%.  So longer term, for now, the option market reads a sort of steady state at ~ 84% vol.  In the short-term, it's all about earnings and the risk leading up the release.

This is trade analysis, not a recommendation.

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