McMoRan Exploration (MMR) - Elevated Implied, Depressed Earnings Vol

MMR is trading $12.65, down 5.4% with IV30™ down 7.8%. The LIVEVOL® Pro Summary is below.



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McMoRan Exploration Co. (McMoRan) is engaged in the exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area of the United States.

MMR just came up on a real-time custom scan. This one hunts for calendar spreads between the second and third months. With earnings due out in the the third month and what seems like perpetually elevated implied to historical realized vol, this could be an interesting vol note.

Custom Scan Details
Stock Price GTE $5
Sigma2 - Sigma3 GTE 7
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 and LTE 50
Sigma2, Sigma3 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify third months that are cheaper than the second month by at least 7 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Let's start with the Skew Tab.



It's the yellow and green curves that we are looking at with respect to the month 2 to 3 calendar spread scan. We cas see that Mar is elevated to May and it's a bit flatter than the other two months (Jan and May). The last two earnings cycles for MMR in this time frame were 4-18-2011 and 4-19-2010 with prior earnings releases on 1-18-2011 and 1-19-2010. The most recent earnings announcement for MMR was 1-17-2012. So, it's a reasonable guess that the next earnings release should be in Apr -- outside of the Mar expiry and well within the May expiry.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



We can see in early Nov that the HV20™ decoupled from the IV30™. Or, in English, the blue line and red line crossed and started diverging. The implied has been trading well above the historical realized short- and long-term vols now for a few months.

Finally, let's look to the Options Tab (below).



Check out the monthly vols at the top: 83.68%, 92.69% and 81.47% respectively for Feb, Mar and May. The vol comps right now are:

IV30™: 86.25%
HV20™: 44.51%
HV180™: 64.62%

So, May is below the 30-day implied while Mar is above. Both of those numbers are significantly elevated to the historical realized vol. Again, earnings are due out in Apr.

This is trade analysis, not a recommendation.

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Sears Holding (SHLD) - Vol and Stock Pop on Takeover Spec

SHLD is trading $49.20, up 13.49% with IV30™ up 8.96%. The LIVEVOL® Pro Summary is below.



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Sears Holdings Corporation (Holdings) is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears).

I found SHLD on my custom scan that hunts for IV30™ day gainers. Let's start with the news driving the vol (and stock) today and then move on to some analysis. First, a snippet from MarketWatch:

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BOSTON (MarketWatch) -- Shares of Sears Holding Corp. jumped nearly 5% in early trading Friday on speculation that the financially troubled retailer might soon be taken private by majority investor Eddie Lampert.

Source: MarketWatch via Yahoo! Finance -- Sears climbs on takeover speculation, written by Val Brickates Kennedy
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Well, there you go... The Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



The stock portion shows an impressive stock recovery YTD. SHLD closed at $31.78 on 12-30-2011. As of this writing, SHLD is up 54.8% for the month. But...

It's the vol portion that's fascinating to me. From the period between mid Oct to late Dec, the implied (IV30™) was trading above the short-term historical realized vol (HV20™). In the chart, it's the red line trading above the blue line.

In English, for two months SHLD options reflected greater forward looking volatility than the stock had been exhibiting over a rolling twenty day trading average.  Now, after the abrupt stock drop on 12-27-2011, the implied has been trading below the HV20™.  That forward looking "implied vol movement" was in fact realized, or in a sense, the options were "right."  While often times that's a stock drop, this time it was a stock drop and then a stock gain. Option / vega / gamma owners have profited handsomely in the last month.

Let's turn to the Skew Tab, below.



The front month (or really, front day) is crazy bid b/c of the move and news today. More importantly, though, the back two months show a nice skew shape -- normal and without any kinks.

Finally, let's turn to the Options Tab.



The ATM Feb straddle is priced at ~11.60 mid-market. Note how much more expensive the puts are than the calls. That's a helluva lot more than the $0.80 in parity -- that's a steep negative rate. In English, SHLD is hard to borrow (HTB). Any kind of stock pop like this can create greater short interest until... there can't be anymore and buy-ins can catapult the stock up. But, in order for the stock to rise, it has to fight through substantial short interest. Tricky...

Possible Trades to Analyze

This is trade analysis, not a recommendation.

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Deutsche Bank (DB) - Vol Dips To 5 Month Low; Earnings Due Out in 2 Weeks

DB is trading $42.14, up small with IV30™ down 8.1%. The LIVEVOL® Pro Summary is below.



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Deutsche Bank AG is a global investment bank. The Company offers a variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world.

This is a vol note -- specifically depressed vol that has now breached a lower bound that has held for 5 months (ish). All of this is in the landscape of an earnings announcement due out in less than two weeks. Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



Let's start with the stock portion (the top half).  We can see DB was in the upper 50's half a year ago, dipped into the high 20's and recently has popped significantly back to the 40's. On the vol side, we can see the implied has tracked the HV20™ (sort of) while the HV180™ (the long-term historical realized vol) has been steadily climbing.

The interesting part, at least IMHO, is that the implied has just breached 52% -- a level which it has traded above for about 5 months. I drew in that horizontal yellow line to help illustrate the level. As far as I can tell, the next DB earnings announcement is in early Feb -- so that's implied vol at a 5 month low while earnings are due out in the immediate-term. Hmmm...

Let's turn to the Skew Tab.



The skew shape across Feb and Apr is quite pretty -- "normal" and smooth. There aren't any obvious anomalies, and Feb is slightly elevated to Apr due to earnings.

Finally, let's turn to the Options Tab.



We can see Feb and Apr are priced to 51.58% and 49.67% vol, respectively. Note that the Apr vol is actually below 50%. The Feb ATM straddle is priced to ~$4.65 mid-market.

This is trade analysis, not a recommendation.

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Tiffany & Co. (TIF) - Depressed Vol After Gap Down on Downward Guidance

TIF is trading $63.16, up 4.3% with IV30™ down 0.8%. The LIVEVOL® Pro Summary is below.



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Tiffany & Co. is a holding company and conducts all business through its subsidiary companies. The Company, through its subsidiaries, including Tiffany and Company (Tiffany), sells fine jewelry and other items that it manufactures or has been made by others.

This is another vol note -- depressed vol to be more specific, but in a stock that has recently had a sharp move down.

Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



In the stock portion I've highlighted the gap down on 1-9-2012 from $66.94 down to 59.94 or 10.5%. The news that preceded that move was lowered earnings guidance. Here's a snippet from a news story:

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Jewelry retailer Tiffany & Co. said Tuesday that its sales growth weakened in the U.S. as shoppers pulled back on buying pricey baubles during the key holiday season.

The company known for its iconic turquoise box cut its yearly earnings guidance. Its shares fell more than 10 percent in morning trading.

Source: Associated Press via Yahoo! Finance -- Tiffany's US holiday sales growth weakens
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On the vol side, I've highlighted the current vol comps. The implied is trading below both historical measures. It's important to note that the HV20™ is elevated now because of that stock move and it was 27.29% before the gap in stock. Still the implied is significantly depressed to the longer-term historical realized measure (HV180™) and the HV20™ is actually in line with that longer-term measure. The comps are:

IV30™: 32.37%
HV20™: 45.69%
HV180™: 46.67%

Let's turn to the Skew tab.



The Jan options show stickiness in the OTM calls and puts and thus the weird looking "V" shape. The second and third expiries show a more normal shape, with May elevated to Feb, likely because of an earnings event in late Mar.

Finally, let's turn to the Options Tab.



We can see that May vol is priced to 34.48% and Feb is priced to 32.31%. Both of those levels are below the HV measures. In English, the option market reflects less risk moving forward (even with an earnings announcement), then the stock has seen both in the last twenty trading days, and in the last 180 trading days. The last two earnings cycles for TIF have seen ~$5.50 moves in stock price in one day.

Possible Trades to Analyze

This is trade analysis, not a recommendation.

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Nabors Limited (NBR) - Depressed Vol, Time Decay and Earnings

NBR is trading $17.13, down 0.9% with IV30™ down 11.0%. The LIVEVOL® Pro Summary is below.



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Nabors Industries Ltd. (Nabors) is a land drilling contractor and a land well-servicing and workover contractor in the United States and Canada.

I found this stock using a real-time custom scan that hunts for low vols. Add an earnings event after Feb expo, and we’ve got an interesting vol story.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

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



We can see that the implied has been dipping on essentially a straight line since October. The 52 wk range in IV30™ is [34.21%, 86.90%], and that high was reached on 10-24-2011. The vol comps as of this writing are:

IV30™: 47.43%
HV20: 61.94%
HV180: 62.56%

The current IV30™ places it in the 25th percentile to its own annual history. Looking to the company website, it looks like the next earnings date is actually just after Feb expiry. Let’s turn to the Skew Tab to examine the month-to-month vols.



We can see that Feb and Mar have almost identical shapes, but Mar vol is slightly elevated to Feb – that’s the earnings event reflected in the options.

Finally, let's look to the Options Tab (below).



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can see the monthly vols for Feb and Mar, respectively, are 47.365 and 49.64%. Looking back to the vol comps above, that Mar level is still depressed to both historical measures. While the Mar vol will almost certainly rise as earnings approach (barring a pre-announcement or takeover or something weird), the options will also decay. That is, there’s a full month before earnings are announced, so the theta will eat at option value.

This is trade analysis, not a recommendation.

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Molycorp (MCP) - Depressed Vol Returns, Stock Moves in Two Weeks

MCP is trading $29.46, up 3.0% with IV30™ down 9.4%. The LIVEVOL® Pro Summary is below.



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Molycorp, Inc. is a rare earth oxide (REO) producer in the Western hemisphere and owns a rare earth project outside of China. The Company is in development stage. The Company focuses to be an integrated producer of rare earth products, including oxides, metals, alloys and magnets.

I last wrote about MCP just thirteen days ago (1-5-2012). You can read that post here:
Molycorp (MCP) - Depressed Vol in Stock Down 60% in 6 Mos.

At the time of that last post, MCP was trading $25.33 with IV30™ at 63.24%. The Livevol® Pro Summary at the time is included below.



The post two weeks ago was centered around the low vol in MCP and how the stock was down 60% since August of 2011. Today the vol is dropping hard, back to the levels from a couple of weeks ago, but the stock is now ~$4 higher. Let's turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



Two things to note since the last post:

1. We can see the stock rise in essentially in a straight line from $25 to $29.
2. The drop in the implied today has actually pushed it below the levels at the time of the post on 1-5-2012.

The implied is still trading well below the two historical measures. Specifically:

IV30™: 62.87%
HV20™: 75.59%
HV180™: 82.37%

Those same vol comps thirteen days ago were:

IV30™: 63.24%
HV20: 74.15%
HV180: 82.19%

So, scary similar. The Jan ATM straddle at the time (25 strike) was $2.43 x $2.53. That same straddle is quoting $4.30 x $4.43, today. In English, that straddle has increased in value by 76% in less than two calendar weeks.

Let's turn to the Skew Tab.



The back two months show a pretty normal skew. The front expiry has just two days and two hours before expiration so the wings are super bid. I have included the skew chart from the prior post, below.



We can see a similar shape across the front three months. For both of these snapshots, the Mar options show the highest ATM vol -- this is likely due to the next earnings release which should be in the Mar options but outside (after) of Feb.

Finally, let's turn to the Options Tab for completeness.



The monthly vols are 59.11%, 62.87% and 68.28% for Jan, Feb and Mar, respectively. The ATM Feb straddle (29 strike) is quoting $4.16 x 4.30.

This is trade analysis, not a recommendation.

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CROCS Inc. (CROX) - Stock and Vol Pop, Positive Guidance... Again

CROX is trading $18.78, up 3.9% with IV30™ up 8.7% as of ~10:20am EST. The LIVEVOL® Pro Summary is below.



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Crocs, Inc. (Crocs) and its consolidated subsidiaries are a designer, manufacturer, distributor, worldwide marketer and brand manager of footwear and accessories for men, women and children. The Company’s products include footwear and accessories that utilize closed cell-resin, called Croslite.

This is a note both on order flow and on vol in the context of a rather volatile stock. Let’s start with today’s action and move backward in time to examine a bit of the bumpy past. I’ve included the tick chart below. The top portion is the stock price, the bottom is the Jan vol.



We can see the stock has bounced in early trading while the Jan vol has moved up with the underlying. This stock move has been accompanied by bullish order flow in the options. A small snippet from the Stats Tab from Livevol® Pro is included below.



We can see that of the 4,602 contracts that have traded today, all but 273 have been calls, yielding a 16:1 ratio to puts.

The only news that I could find today comes from my friends at Briefing, and it’s rather short:

“Crocs pops to HoD; Hearing move attributed to PE chatter”
Source: Provided by Briefing.com (www.briefing.com)

The story for CROX is rather involved over the last few months. Let’s turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



On the stock portion we can see the abrupt gap down on 10-18-2011, when the stock dropped from $26.64 to $16.15 close-to-close in one day or a 39% move. The news driving that reaction was a pre-announcement that Q3 forecasts would be missed on realized revenue of $265 million and earnings of $0.31-$0.33 / share (Source: Seeking Alpha via yahoo! Finance -- Crocs: Benefit From Market Inefficiency, written by Robert Broens). Here’s where it gets funky:

In July 2011, analysts expected $0.32 / share and revenue of $265 million... Umm, those numbers sound familiar?

But... Before that, CROX came out and raised forecasts to $280 million and $0.40 / share in earnings. On that day the underlying jumped from $26.76 to $30.92 (close-to-close).  So the “miss” was in fact the exact level that analysts originally expected (kudos to the analysts).

Fast forward to Jan of this year, and CROX pre-announced that Q4 results would come at the high end of the forecasts, and the stock popped again. Finally, we saw the news (or lack thereof) today and the stock and vol pop.

Looking back to the Charts Tab and focusing on the vol portion, we can see that the implied is trading at a significant discount to the two historical realized measures. Or, in English, the options reflect less stock volatility moving forward than the stock has had both in the last 20 trading days and the last 180 trading days.

Specifically:
IV30™: 59.89%
HV20™: 68.17%
HV180™: 86.63%

Given the recent movement in CROX and rather unsure footing of their forecasts, that seems… odd…

Let’s turn to the Skew Tab.



We can see that Jan vol is elevated to the back months and that the skew in Jan reflects upside potential. The next earnings report for CROX is due out at the end of Feb, but after Feb expiry (so, in Mar options but not Feb). That volatility event is priced into the Mar options and thus the “green line” lies on top of the “yellow line.”

Finally, let’s turn to the Options Tab.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. But, we can see the action in the Feb 20 calls, where over 1,500 have traded. The prices are a bit ambiguous with respect to reflecting purchases or sales, but the circumstantial evidence (vol up, stock up) points to vol (options) purchases. The vols for the front three months are 75.73%, 59.89% and 62.23%, respectively. That Mar vol with earnings is interesting as are those three day options in Jan.

This is trade analysis, not a recommendation.

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Research in Motion (RIMM) - Samsung Takeover Rumor Spikes Stock and Upside Skew

RIMM is trading $17.73, up 9.7% with IV30™ up 16.0%. The LIVEVOL® Pro Summary is below.



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Research In Motion Limited (RIM) is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market.

This is a vol / skew note along with some strong upside intraday stock movement. Let's start with the tick chart for today with a couple hours still left in the trading day.  The top portion is the stock (today with one minute bars) and the bottom portion is the Jan vol (also one minute bars).



So what's the scoop? Here's a quick snippet from an article posted by MarketWatch:

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Shares of Research In Motion Ltd. jumped nearly 7% to $17.25 early Tuesday afternoon after a technology blog reported that the company is considering a sale to Korean electronics giant Samsung. A report on the Boy Genius Report, citing unnamed sources, called a sale to Samsung a "front-runner" among several options currently being evaluated by RIM's management. "Jim is going hard after Samsung," one source told the blog, referring to RIM co-CEO Jim Balsille

Source: MarketWatch via Yahoo! Finance -- RIM shares up on report of Samsung interest, written by Dan Gallagher.
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The news has not only pushed RIMM stock (it's actually over $17.90 as I'm writing), but the vol as well. Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



I've written ad nauseum about RIMM and the potential that the company is simply going away. I've postulated a few times "Is RIMM Risking Obsolescence?" I recall an analyst from.. somewhere... stating that there was a non trivial chance that RIMM would not exist by next holiday season. Gulp. The 52 wk high is $70.54 (whoa), while the 52 wk low is $12.54. On the vol portion of the chart we can see how the implied has popped over the last few trading sessions. As of this writing, the implied is up almost 25% from just six calendar days ago.

Let's turn to the Skew Tab, below.



The skew in Jan is most notable (to me). The upside calls in Jan (and downside puts) are super bid. In fact, the Jan 20 calls are worth ~$0.10 with just three days and two trading hours to go before expo. RIMM hasn't closed above $20 since 10-31-2011. It's also interesting to note that RIMM upside skew is bid across all three of the front three months.

I took a look at the skew a month ago (12-13-2011), and it in fact demonstrates the same shape -- with the upside bid. I've included that snap, below.



We can contrast the vol diff between Jan and the back two months now relative to in Dec. A part of that is simply how close we are to expiration.

Let's turn to the Options Tab, for completeness.



The ATM vols are actually quite similar priced to 71.50%, 75.75% and 70.5% for Jan, Feb and Mar (not pictured), respectively.

FULL DISCLOSURE: I hold a position in RIMM short Jan / long Feb.

This is trade analysis, not a recommendation.

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Trina Solar (TSL) - Industry Pop, Firm Specific Risk, Earnings Vol

TSL is trading $10.04, up 4.9% with IV30™ down 1.7%. The LIVEVOL® Pro Summary is below.



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Trina Solar Limited (Trina Solar) is an integrated solar-power products manufacturer based in China with a global distribution network covering Europe, North America and Asia. The Company produces standard monocrystalline photovoltaic (PV) modules ranging from 165 Watts to 185 Watts in power output and multicrystalline PV modules ranging from 215 Watts to 240 Watts in power output. Trina sells and markets its products worldwide, including in a number of European countries, such as Germany, Spain and Italy.

While the stock is trading over $10 today, this was a $7 stock just a few days ago. Let’s look to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



On the stock side, I’ve highlighted the recent pop. Also note the equity price meltdown over the last six months. In fact, the annual high for TSL is $31.08, reflecting the horrific performance of solar in general over the last year. The news that popped the stock recently surrounds some component price stability. Here’s a snippet from a news article from Reuters:

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Solar stocks rallied sharply on Wednesday, regaining some of the ground lost during last year's steep sell-off, on signs that prices for solar energy components were stabilizing.

Chinese solar companies Hanwha SolarOne Co Ltd (HSOL.O), JinkoSolar Holding Co (JKS.N), JA Solar Holdings Co Ltd (JASO.O), Trina Solar Ltd (TSL.N), Suntech Power Holdings Co Ltd (STP.N) and Yingli Green Energy Holding Co Ltd (YGE.N) led the jump, with gains of 23 to 41 percent.

Most solar stocks had plummeted more than 60 percent last year as prices for the panels that turn sunlight into electricity fell sharply, cutting profit margins for the companies that manufacture them.

Investors on Wednesday, however, cheered figures showing a dramatic rise in new solar installations in Germany in the fourth quarter and higher prices on the industry's key raw material, polysilicon.

Source: Reuters via Yahoo! Finance. Solar stocks soar on strong Germany, improved prices.  Reporting by Matt Daily in New York and Nichola Groom in Los Angeles; Editing by Gerald E. McCormick, Gunna Dickson; Editing by Richard Chang
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That news pushed TSL from $7.30 on 1-10-2012 to $9.43 the next day, or 29.2%. All told, TSL stock has popped from $7.08 to now over $10 in less than five trading days -- a 41.8% rise.

Let’s turn to the Skew Tab, below, to examine the month-to-month and line-by-line vols.



We can see a monotonic increase in vol from the back to the front, with the Jan expiry substantially elevated to both of the back months. My best guess is that the next earnings cycle for TSL will be in late Feb, likely (or possibly) after Feb expiry. In English, the next earnings cycle should be in the Mar options. As of right now, the Mar options are priced below the front two months (with respect to vol). Hmm…

Let’s turn to the Options Tab for completeness.



I wrote about this one for TheStreet, so no specific trade analysis here. We can see the front three expiries are priced to 115.33%, 97.66% and 95.20% for Jan, Feb and Mar, respectively. It’s important to keep in mind that Chinese stocks do hold a systematic risk associated with a less than transparent reporting body – aka the Chinese government. Further, there is a firm specific risk of rather large proportions as it’s not terribly uncommon for fraud allegations to rise and halt the stocks – potentially for several months.

Having said that, it’s the depressed Mar vol relative to the front months that caught my attention along with the rally in the industry on a broad scale and TSL stock more specifically.

This is trade analysis, not a recommendation.

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