Thursday, May 15, 2014

* Kandi Technologies (KNDI) - Stock Rockets then Implodes... But is it in Equilibrium Now?

KNDI is trading $11.95, up small with IV30™ down 3.9%. The Symbol Summary is included below.

Provided by Livevol

Kandi Technologies Group, Inc. (Kandi), formerly Kandi Technologies, Corp., is engaged in designing, developing, manufacturing, and commercializing electrical vehicles (EVs), all-terrain vehicles (ATVs), go-karts, and specialized automobiles related products for the People’s Republic of China (PRC) and global markets.

This is a volatility and stock note in a name that has a lot of attention from the retail market and has seen an incredible ride in stock price.

The Charts Tab (two-years) is below.

Provided by Livevol

Two-years ago this was $3.00 exactly on close.  It reached as high as $22.40, just an awesome price appreciation.  But, since that high on 3-18-2014 (less than two-months ago), the stock has dropped ~50%.
The stock is in an interesting spot.. a sort of equilibrium may be forming... or it's about to gap (up or down).  .
The option market reflects lower risk, which points to a belief that the stock may in fact have found steady footing at this price level.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

Checkout that recent drop in the implied volatility (risk).  That drop has coincided with an earnings release (normal) and as I said prior, a stock price that has for the moment kinda "chilled out."

We'll see...

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

Provided by Livevol

We can see a parabolic skew shape, which means the option market reflects two-tailed risk in KNDI stock in the near-term.  This shape is actually "abnormal," yet feels appropriate for this stock given how violently it has moved.

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 a good one to question.  The at-the-money (ATM) straddle is the Jun $12.5 strike and is priced at ~2.90.  In English, the option market is pricing a stock price range of [$9.60, $15.40] by the end of trading on Jun 20th.  If at anytime before then the stock breaks from that range, the vol was in fact too low.

But, as we can see, while the volatility has been dropping for KNDI, it's definitely not "low."  That price range is actually quite large.

  • 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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