Friday, March 28, 2014

Interpublic Group (IPG) - Massive Earnings Bet Comes into Play

IPG is trading $16.95, up 1.1% with IV30™ up 13.6%. The Symbol Summary is included below.

Provided by Livevol

The Interpublic Group of Companies, Inc. (Interpublic) is a global advertising and marketing services companies.

This is an order flow note, specifically what appears to be an earnings bet to the upside.  Let's turn to the Stats Tab, below.

Provided by Livevol

We can see that 9,769 calls have already traded today on a total daily average of just 232.  Even more interesting is how concentrated the trading is.  Also note that the total open interest right now is 13,509 and if these are all opening positions, the OI will pop ~70%.  So, in English, this is a huge position for this stock.

The Options Tab is included below.

Provided by Livevol

We can see that more than 8,300 of the contracts traded were in the May 18 calls on zero existing open interest.  From what I can tell these are substantially purchases and I don't see a lot of hedging going on (stock volume is ~2.9 million shares on average of ~3.9 million shares).  This looks like naked call buying -- of course it could be a hedge against a short position.

The Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

We can see a nice stock appreciation from ~$10 to now over $17. The all-time high for IPG is over $50.  Let's turn to the volatility chart, below.

Provided by Livevol

The vol is low(ish) but has seen a substantial pop of nearly 40% in the last month.  A part of that is due to approaching earnings, but not all of it.  The risk is simply increasing per the option market and it appears to be a reaction to the turn in the stock price off of it's multi-year highs.

The Skew Tab snap (below) illustrates the vols by strike by month.

Provided by Livevol

This is an interesting image -- we can see how the skew has bent upwards where the out-of-the-money (OTM0 calls are now priced to higher volatility than the at-the-money (ATM) options.  In the general sense this would be considered "abnormal" skew, but it's a great illustration of how order flow affects skew in real-time.

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.

There's a little ambiguity about the exact date of the earnings release which happens to be right around Apr options expiry.  My best guess is that this is a speculative bet on that earnings release.

This is trade analysis, not a recommendation.

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