Tuesday, April 15, 2014

Google (GOOG) - Earnings Preview: Highest Risk in Nearly 2-years. A Market Moving Event.

GOOG is trading $522.30, down 1.9% with IV30™ up 1.4%. The Symbol Summary is included below.

Provided by Livevol

Conclusion: The risk as reflected by the option market into this earnings release is higher than the last six earnings events for GOOG.

Update 4-16-2014

Provided by Livevol

Note that IV30™ number dropping. Has the option market now fallen asleep?

This is a follow up to the pre-earnings post which you can read here:

Google (GOOG) - Risk Explodes to Multi-year Highs; GOOG's Earnings Aren't Just About a Single Company Anymore.

I noted in that post a week ago that:

"[Volatility] has gone past "nearing" and is now actually at multi-year highs, still with more than a week to go before earnings."

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

Provided by Livevol

So we see the price drop of late -- the momentum bubble popping as it were.  For more on that general market dynamic, you can read this post:

NFLX, TSLA - Correlation of MOMO's May Point to Bubble Pop; 3 Things We Should Know

But this is all about an earnings preview, and that means volatility. Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

I note two phenomena:

1. Since the unprecedented levels a few days ago, GOOG volatility has actually dropped.  I must say, of all the things I will comment on here, this is the most confounding.

2. The blue "E" icons represent earnings dates, and we can see that the implied volatility (the risk as reflected by the option market into this earnings release) is higher than the last six earnings events and just below the seventh (two-years ago).

Finally, the Options Tab is included below.

Provided by Livevol

Using the $520 strike as the at-the-money, we see that the option market reflects a price range of [$488, $552] by 4-18-2014.

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

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