Wednesday, May 7, 2014

Gannett (GCI) - Shhh... Rumors... Huge Upside Order Flow Explodes Volatility and Skew...

GCI closed trading at $27.08, up small with IV30™ exploding up 19.7%. The Symbol Summary is included below.

Provided by Livevol

Gannett Co., Inc. is an international media and marketing solutions company, delivering content and services across an integrated, multiplatform portfolio.

This is an order flow, volatilitty and skew note in a company that showed huge upside call buying today, a totally turned around skew and rising volatility because of... a rumor...

Here's the news story, then the analysis:

NEW YORK (Reuters) - Gannett Co Inc (GCI), one of the newspaper owners of, is exploring a bid for all of the auto sales website and has discussed teaming up with private equity firms in a deal that could reach $3 billion, people familiar with the matter said.

Gannett, the parent company of USA Today, is one of the five newspaper publishers that back Classified Ventures, the entity that owns helps people buy and sell cars on the Internet.


The sources cautioned that a Gannett bid for may not materialize and asked not to be named because the talks are private. Gannett declined to comment and representatives of Classified Ventures and did not immediately respond to requests for comment.

Source: Exclusive: investor Gannett mulls bid for entire company, written by Soyoung Kim and Greg Roumeliotis.


Let's turn to the Stats Tab, below.

Provided by Livevol

We can see that 6,882 calls traded today on total daily average over the last 3-months of 477.  So, in English, over 14x the average daily volume.

The Options Tab is included below, so we can see where the action took place.

Provided by Livevol

Check that May 28 call line out: 5,573 calls traded on just that line out of 6,882 total calls on the day.  Some of the trades went up for size (1,203 + 112 + 208 +102 + a bunch of smaller ones all at exactly 13:04:41 for for $0.20).

All that call buying pushed the volatility up (not the stock), and saw the market go from $0.05 x $0.20 to a close of $0.20 x $0.30.

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

GCI has seen a remarkable stock appreciation over the last two-years from ~$13 to now over $27.  The annual high is $30.22 and those call buyers on the $28 strike are betting on at least that in about two weeks.

But this is all about the volatility, so let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

We can see a few phenomena:

1. The volatility is low relative to the last two years (it's in the 20th percentile of the last year).
2. The volatility has popped from ~24% to now over 30% in just a day.

But, alas, it's the skew that has been most affected.  The Skew Tab snap (below) illustrates the vols by strike.

Provided by Livevol

Check out that skew shape.  Hugely tilted to the upside, meaning the option market reflects greater upside risk (potential) than downside.  A cool exercise (which we will partake in) is to look at the skew a couple of weeks ago.

Provided by Livevol

We can see on 4-2-4-2014 that the skew had a "normal" shape.  The change in the skew is due to the rumors --> order flow.

In my opinion, this is 'much ado,' but hey, we gotta watch this one for the next 10 days.

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.

This is trade analysis, not a recommendation.

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