Tuesday, May 13, 2014

* Golar (GLNG) - Natural Gas is Low Risk? Not Here; Massive Risk Growth to Nearly Unprecedented Levels as Stock Hits Near Decade Highs.

GLNG is trading $44.39, down 0.7% with IV30™ up 8.7%. The Symbol Summary is included below.

Provided by Livevol

Golar LNG Limited (Golar) is the owner and operator of liquefied natural gas (LNG) carriers and floating storage regasification units (FSRUs).

this is an elevated volatility note as really got my attention because of the industry.  Natural reserves in the US are basically changing the entire energy paradigm (until we run out), and it's quite noteworthy a $3.6B firm in this industry is showing remarkably high risk via the options market.

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

The stock price story is a common one -- "up."  This was a $33.80 stock two-years ago and is now above $44 while it also pays a hefty $1.80 dividend (4%).  That's a nice investment.

But this is a vol story, so let's turn to the IV30™ chart in isolation, below, over the same two-year time period.

Provided by Livevol

We can see the implied trading really low (below 30%) not too long ago, and then this huge turn up recently.  The 56.75% level hit today is an annual high and very close to multi-year highs.  The firm releases earnings sometime in the Jun expiry (after May 17th but before Jun 20th).  But the prior levels of risk (volatility) into earnings are way lower than the current level (the blue "E" icons represent prior earnings cycles).

So... what's going on?...

I actually don't know, but what I do know is that the risk will likely rise into earnings (unless there is some pre-announcement or event). And, there's more...

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

Provided by Livevol

Check out that skew shape -- it's parabolic.  That means the option market reflects two-tailed risk.  this is actually "abnormal" skew shape for most firms, but it's par for the course for GLNG... Odd...

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

This is very early, but by looking at the Jun $45 strike options we can see the option  market is pricing a stock price range of ~[$39.60, $50.40].

Is there anything weird about that range?.. Actually, yes.  The all-time high (since 2003) in stock price is ~$47.  Hmm...

  • 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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