Thursday, January 9, 2014

TAL - Volatility Rips to Multi-year Highs; Stock Dropping. Option Market Was Right Two-Months Ago.

TAL is trading $47.47, down 3.6% with IV30™ up 14.8%. The LIVEVOL® Pro Summary is included below.

Provided by Livevol

TAL International Group, Inc. is a lessor of intermodal containers and chassis.

Many of my recent articles have surrounded the observation that the option market has fallen into a sort of malaise and that malaise has seemed to be a mistaken belief in market equilibrium.  Three of the more recent ones are included below.  You can click on the titles to read the articles.

1-8-2014: Netflix (NFLX) - The Option Market Fell Asleep; We Knew It; Then it Woke-up; We Knew That Too.

1-6-2014: Aegerion Pharma (AEGR) - UPDATE: Stock Gaps, Volatility Explodes... But We Knew This Would Happen on Friday... Didn't We?

12-26-2013: Twitter (TWTR) - UPDATE: How the Option Market Totally Blew It, And We Knew it Two-Weeks Ago.

Today I want to look at a smaller company / less known name that shows the opposite; the option market is very much awake with volatility exploding into uncharted territory. 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.

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

The TAL Charts Tab (two-years) 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 see two phenomena:

1. The stock is up from $31.97 to $47.47 in two-years, or a 48.5% rise.
2. In the last ten days, the stock is down from $57.35 to $47.47 or a 17.2% drop.

That stock drop has been accompanied by an incredible spike in the short-term implied volatility. Let's turn to the two-year IV30™ chart in isolation, below.

Provided by Livevol

I've drawn a couple of lines in here:

1. That horizontal blue line represents the prior two-year high in IV30™ (42.82%).
2. The yellow arrow points out the wild spike in IV30™ from 23.25% in early Nov to now 49.39%, or a 112% rise.

Note that the stock dip didn't occur until 12-31-2013, so he option market was reflecting rising risk well ahead of the stock drop.  Now we find ourselves at a volatility level that we basically have never seen before for TAL, including a 15% rise today alone.


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

Provided by Livevol

Check out the volatilities across the top. Jan is priced to 50.69% while Feb is priced to 48.00%.  Either way, the prior two-year high was in the 42% range, so we're talking elevated vol in a major way (relatively).

This is trade analysis, not a recommendation.

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