Fusion-io (FIO) -Stock Gaps Down; Vol Explodes as CEO and CMO Exit "Immediately"… But Keep Your Eye on that Vol

FIO is trading $14.09, down 21.72% with IV30™ up 36.4%. The LIVEVOL® Pro Summary is below.



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Fusion-io Inc (Fusion) is a provider of datacenter solutions that accelerate databases, virtualization, cloud computing, big data, and the applications that help drive business from the smallest e-tailers to some of the largest data centers, social media leaders, and Fortune Global 500 businesses.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. This is an interesting one b/c the stock has gapped down on what seems to be a total surprise that the founder and CEO has stepped down effective immediately along with the company’s Chief Marketing Officer to “to pursue entrepreneurial investing activities.” But, no, that’s not the most interesting part…

What’s interesting is that with the stock down 22%, and a vol pop of 36%, the IV30™ is still just in the 39th percentile (annual). So this is a “depressed elevated vol” note… Let that roll around on your tongue for a second…

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The goal with this scan is to identify names with rising IV30™ that also have a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The one-year FIO 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).




On the stock side we can see an annual high of $32.63 and now a new annual low of below $14 (intra-day) in the span of just seven months. If you check out that blue “E” icon (the most recent one), that’s the last earnings release. The stock rose from ~$15 to ~$20 in the few days surrounding the release. So, the CEO is leaving the firm after a “good” earnings report. So all is well, right?...

But, this is also a vol note, so let’s look to the one-year IV30™ chart, below.



We can see how the IV30™ moves in a hypnotic rhythm to earnings (as do all stocks). But more interesting is that with this incredibly surprising news, the IV30™ has popped, but only to the mid 60% level. And why do I find that weird?... Because either this news is a non-event in the sense that this really is just a CEO jumping on a start-up idea (that likely got funding today or whatever) and the company is doing fine (i.e. this is not a reflection of what’s happening at FIO), so the stock price should be essentially unchanged… Or, this is absolutely a reflection of some “bad stuff” going on at the firm and a 22% drop is just the start of what could be a free fall to even lower new lows. That means the vol is too low.

Or… both of those are wrong and the equity market has priced this news basically perfectly, and the elevated risk (as reflected by rising vol) is appropriately “middle of the road.” I dunno… I feel like the prior rather than the latter…

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



Across the top we can see May vol is priced to 72.87% (up a huge 24.6 vol points today) and Jun is priced to 61.32% (up 14.4 vol points – also huge). Again, this would make sense that the font is more elevated than the back since the news / reality of this change will start to be realized sooner rather than later… or… will it?...

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Are Options Used to Cheat on Takeovers Using Insider information? Yeah, I think so... But Let Me Prove it.

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Note the date of publication: Tuesday, May 7, 2013
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This is a slightly different type of post than I normally write. Let me know what you think about it on Twitter (@OphirGottlieb).

Here's my conclusion up-front:
In my opinion, the use of options to garner unfair (read: illegal) financial gains through the use of private/insider information is a legitimate phenomenon that is identifiable on a case-by-case basis (read three articles included below as heuristic examples), as well as in a broader analysis.

Bottom line, yeah, the cheaters are using options. Or so I think...


I did a study (using Livevol data) -- or really an "analysis" -- of option trading trends before a takeover is announced and compared those trends to the six months prior to the takeover announcement. The idea was actually inspired by Reuters (and one of their immensely talented writers, Doris Frankel) which came to us with the intriguing question, "does the option market reflect the potential misuse of insider information prior to takeovers?"

While answering that question is a bit ambiguous (see analysis below), IMHO, yes, there is a trend, and yes, there are cheaters. A lot of them. Now that doesn't come as a surprise to most of you reading the blog - somehow I have turned into the lightning rod for opinions on insider trading, but let's look at data rather than opinions (even though my opinions are much more fun!)

The Set-up:
1. We looked at the top 100 takeovers from Jan 1 2012 to Aug 2012.

2. We looked at the average option volume (puts and calls separately) for the six-months prior to the takeover stopping five-days prior to the announcement.
e.g. Takeover Date Jun 7, we looked at average option volume from Jan 1 - Jun 1.

3. We then compared #2 with the average option volume five days prior to the takeover (continuing the example above, we looked at the average option volume Jun 2- Jun 6).

To add a little flavor to the mundane number crunching, I have posted several articles in specific that dealt with highly suspicious option trading prior to a takeover. I have included just a few of those below for reference below (and I do mean, "just a few" of the ones I have written):

2-14-2013
HJ Heinz (HNZ) - Takeover and a Cheater? Maybe...

12-20-2012
NYSE Euronext (NYX) -- Unusual Trading in NYX Takeover and Potential Hidden Trades

9-27-2010
AirTran (AAI) - Lucky Bet or Cheater in Takeover?

The Results


We can see:
1. On average option volume increased 67% in the five days prior to a takeover when compared to the six-months prior.

2. On average call option volume increased 71% in the five days prior to a takeover when compared to the six-months prior.

3. On average put option volume increased 60% in the five days prior to a takeover when compared to the six-months prior.

Pretty compelling evidence... But, we can also see that the standard deviation of the daily average option volumes was about 2x higher surrounding the takeover.

In English, option volume was much higher and the volatility of volume was much higher in the five days surrounding a takeover. For you Stats 101 guys, yes, this would fail a test for significance, but this is finance -- tests of significance aren't necessarily the point...

OK, so what is the point? In my opinion, the use of options to garner unfair (read: illegal) financial gains through the use of private/insider information is a legitimate phenomenon that is identifiable on a case-by-case basis (read those three articles for example), as well as in a broader analysis.

Bottom line, yeah, the cheaters are using options. Or so I think...

This is trade analysis, not a recommendation.

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Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

AOL - Stock Breaches Annual High in Vol; Flirts with Annual High in Price; Earnings Due out in Two Days

AOL is trading $40.82, up 1.2% with IV30™ up 5.1%. The LIVEVOL® Pro Summary is below.



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AOL Inc. (AOL) is a global Web services company with a range of brands and offerings and a global audience. The Company's business spans online content, products and services, which it offers to consumers, publishers and advertisers. Its business operations are focused on AOL Properties and Third Party Network.

I found this stock using a real-time custom scan. This one hunts for elevated vols. AOL does have an earnings release in a day, so the elevated vol isn’t a surprise. But, it’s the level of the vol and the reaction of the stock to the prior earnings releases that caught my attention. Add to the mix a multi-year high in stock price and we have a compelling story.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year AOL 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).



On the stock side we can see a very nice price appreciation. This was a $19.35 stock two-years ago and it’s now trading more than 100% higher. In fact, the stock hit a low of ~$10 after an earnings release in early Aug of 2011, and from that point the stock has quadrupled. As of right now, the stock is near a multi-year high.

In fact, it’s the abrupt moves this stock makes off of earnings that caught my eye. Check out the blue “E” icons which denote earnings and how often the stock gaps when the new is released.

Let’s turn to the one-year IV30™ chart below to isolate the vol movement.



Again, the blue “E” icons represent earnings. Now take a look at the trajectory of the IV30™ of late into the earnings announcement in a day (two days but earnings are reported BMO). The vol is well into annual high territory and continues its rise today. The abrupt reactions to past earnings could be a part of this slightly frenzied vol in AOL along with the multi-year high in stock price. The option market reflects more risk in the next 30 days than it has for the last year ad that risk is tied directly to earnings. My best guess is that vol will continue to rise tomorrow and we will see yet higher annual highs, perhaps in the 57%-60% range in IV30™.

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



Across the top we can see the monthly vols are priced to 69.49% for May and 43.46% for Jun. Obviously that vol diff is earnings related. Though not pictured here, I note that the May 50 calls are dime bid and the May 32 puts are nickel bid. It feels like the option market is bracing for stock moving news come earnings. We’ll see…

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Allergan (AGN) - Stock Falls Hard off of Earnings; Vol Rises.. But There's More...

AGN is trading $98.95, down 12.9% with IV30™ up 15.2%. The LIVEVOL® Pro Summary is below.



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Allergan, Inc., is a multi-specialty health care company focused on developing and commercializing pharmaceuticals, biologics, medical devices and over-the-counter products. The Company operates in two segments: specialty pharmaceuticals and medical devices.

The news is lower profits and worse "other stuff." Here are a few news snippets:

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Allergan Reports Drug Development Setbacks, Lower Profits
Vision-Loss Drug, Hair-Loss Treatment Both Face Delays
Source: WSJ.com via Yahoo! Finance

May 1 (Reuters) - Allergan Inc, maker of the Botox anti-wrinkle treatment, said it will delay late-stage trials of its highly anticipated eye drug Darpin, sending its shares down 14 percent.
Source: Reuters via Yahoo! Finance, written by Esha Dey.
---

Here's what caught my eye about this one. Sure the shares are imploding, and it certainly is an unusual phenomenon (but not impossible) to see vol rise off of a an earnings release if there is more news to it (which there is in this case). But that's the catch here. Let's take a look at the one-year 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 how nicely the rises were appreciating since Dec of last year when the stock was ~ $90. Keep in mind that yesterday this was a $114 (ish) stock, so the price saw a ~30% rise in about five months... Then today happened.

But, what is the purpose of the blog today, Ophir? Fair question. Here's the answer, it's in the details of the vol chart in isolation, below.



Vol has been rising of late, OK, point #1. Vol has popped of of earnings, OK, a repeat of a point earlier. But that's not it... this is: Look at the vertical axis... The actual numbers. This was a 23% vol stock pre-earnings, and even now is a 27% vol stock. A stock that has been up 30% in half a year, that is down $15 on earnings today and has forward looking news that is so uncertain that vol has risen off of earnings. What I'm saying is, "What the hell is this stock doing trading at 27%?"

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



Across the top we can see the monthly vols are priced to 28.34% in May and 25.67% in Jun. Boy, that feels low... right?...

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Actavis (ACT) - Takeover Rumors Start the Fever; Vol Explodes 100%; Stock Reaches Annual High.

ACT is trading $106.48, up 5.5% with IV30™ up 95.3%. The LIVEVOL® Pro Summary is below.



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Actavis Inc., formerly Watson Pharmaceuticals, Inc., is an integrated global pharmaceutical company engaged in the development, manufacturing, marketing, sale and distribution of generic and brand pharmaceutical products.

I found this stock using a real-time custom scan. This one hunts for elevated vols.

What’s interesting is that this firm has earnings due out on 5-2-2013 BMO, but the vol explosion and price move have nothing to do with the earnings vol event. This is takeover fever… in a major way. The prior annual high in IV30™ was 31% -- as I’m writing this article the implied is trading just under 42%, now. The prior 52 wk high in stock price was ~$101, and the stock is trading well above that level right now as well.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The one-year ACT 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).



On the stock side, even before today, we can see a nice appreciation over the last year. One year ago this was a $75.36 stock, so it’s up a lot even before the pop today. I also note the HV180™ (pink curve on the bottom portion of the chart) – that represents the realized historical volatility of the stock over the last 180 trading days, or about nine months. The stock moves at ~20% annualized clip – quite low for a pharma company – although this is a generic pharma company so, it’s not quite as spicy as the normal guys in this industry.

Of course, the real stock story is the pop today on news that over the weekend there may have been discussions about a takeover from Valeant Pharmaceuticals. Couple that with a raised price target from an analyst and you get… today. My source for this news snippet was Investors.com.

Let’s turn to the one-year IV30™ chart to see the incredible vol rise today.



That spike is just vertical. Rumor = 100% pop in IV30™; that’s the equation we’re looking at today. Wow…

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



Across the top we can see the monthly vols are priced to 42.08% in May and 32.32% in Jun. That elevated vol in May is due both to earnings and this takeover news. I do note the rise in vol for Jun and Aug as well (look at the little green numbers in parenthesis under the vol number). Those vol pops are not earnings related, but rather takeover related.

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Netflix (NFLX) - Vol Nears Multi-Year Lows as Stock Explodes; Hollywood Take Note -- Another Shot Across Major Distributor’s Bows

NFLX is trading $216.70, down small with IV30™ down 2.7%. The LIVEVOL® Pro Summary is below.



Netflix, Inc. (Netflix), incorporated on August 29, 1997, is an Internet subscription service streaming television shows and movies. The Company’s subscribers can watch unlimited television shows and movies streamed over the Internet to their televisions, computers and mobile devices, and in the United States, subscribers can also receive digital versatile discs (DVDs) delivered to their homes.

I found this stock using a real-time custom scan. This one hunts for depressed vols. After doing a number of articles on elevated vol, I find this a very compelling story on depressed vol given the incredibly high realized vol of late.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The two-year NFLX 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 the wild ride in NFLX stock over the last two-years, but really it’s been a five-year ride. A lot of respect has to be levied at the feet of NFLX management for doing such a stellar job of pulling the firm out of what looked to be a hopeless situation just a few months ago. And, on a personal note (and as a professional screenwriter), “House of Cards” was absolutely brilliantly done – an in house NFLX production which has fired a shot back across the bow of the largest content distributors in Hollywood (Sony, Disney, Paramount, Warner Bros, Lions Gate, Fox, NBCUniversal).

NFLX has taken on the industry big boys… again…

I wonder if in a few years, the next time we discuss the most powerful distributors in Hollywood, if NFLX is on the list... At the top...

If we look at the last two earnings cycles (blue “E” icons), we can see the abrupt gaps up on the news – when NFLX reported better than expected results (by a lot).

But, this is a vol note, so let’s look to the two-year IV30™ chart in isolation.



We can see the implied as of today is just above an annual low and quite close to multi-year lows. The vol crush off of earnings is normal and expected. What I do find odd, in this case specifically, is how low the implied has gone after a 25% move up on earnings just a few days ago. Looking to the vol comps, we can see quite a divergence between the implied (forward looking vol) and historical vols.

IV30™: 46%
HV10™: 118% (all earnings based)
Hv20™: 91 (mostly earnings based)
HV30™: 78% (somewhat earnings based)
HV90™: 83%

It’s that HV90™ number that really catches my eye. HV90™ is the realized volatility over the last 90 trading days (which is more than four months). So, the stock has moved at an 83% annual clip over the last four months, but the IV30™ (the option market’s forward looking projection for the next 30 days) is considerably lower. Hmmm….

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



Across the top we can see the monthly vols are priced to 46.38% in May and 44.95% in June. Both feel low… right?

This is trade analysis, not a recommendation.

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Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

Under Armour (UA) - Vol Nears Multi-year Lows; Really?

UA is trading $55.38, up 0.7% with IV30™ down 0.5%. The LIVEVOL® Pro Summary is below.



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Under Armour, Inc. (Under Armour) is engaged in the development, marketing and distribution of apparel, footwear and accessories for men, women and youth. The Company’s products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields worldwide.

I found this stock using a real-time custom scan. This one hunts for depressed vols. This mote is in the opposite vein as some of my prior posts where I was seeing stocks breaching multi-year highs in vol into earnings even as the VIX is at very low levels relative to the last four years. Basically, it's time for a different flavor -- so here we go.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The two-year UA 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).



On the stock side we can see a nice price appreciation. This was a ~$35 stock two-years ago and is now trading early 60% higher. Well done management. But, this is a vol note, so let's look at the two-year IV30™ chart in isolation.



I have drawn in that horizontal yellow line to clearly mark how low vol is now relative to the last two years. It's not quite at new lows,but it's headed there. Specifically, it's in the 2nd percentile. I note how low the vol is in UA, now that earnings have come and gone, in a world where nothing feels "low risk."

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



Across the top we can see the monthly vols are priced to 30.15%, 31.005 and 30.88% for May, Jun and Jul, respectively. Note the consistency of the vols -- i.e. they're all low relative to the last two years. I'm not making a prediction, I'm just sayin', multi-year low in vols priced through July (and pretty close in Oct)... I dunno....

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AAPL - Earnings Preview – Some Things You May Know, and Some You Do Not

AAPL is trading $405.70, up 1.8% with IV30™ up 1.8%. The LIVEVOL® Pro Summary is below.



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Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.

In case you hadn’t heard, AAPL is releasing earnings today, AMC.

I’m, going to show you some things that I see, that perhaps you haven’t – and they matter, a lot.

First, I do remind of the recent four articles I posted on AAPL. I think the titles summarize the articles fairly well. Feel free to click the links to read ‘em.

4-18-2013
Apple (AAPL) - This Just Isn't the Company it Used to Be... And it Never Will Be Again."

1-23-2013
Apple (AAPL) - "Just the Facts Ma'am" -- Well, that Supports the Opinion: "Everything has Changed. The Old AAPL is No More."

12-10-2012
AAPL - Everything has Changed. The Old AAPL is No More. The New AAPL is a Riskier Entity and the Market Doesn't Know What that Means Yet

12-5-2012
Apple (AAPL) - Have We Moved into a Totally New Volatility Paradigm for This Company? Has Everything Changed?

On to today… First, I have included the two-year AAPL Charts Tab 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 we can see AAPL’s incredible fall from the highs of over $700 just ~seven months ago. The firm is down over 40% from those highs or over $200 billion in market cap. I saw a great stat that put the number in context – AAPL has lost the market cap of Google over the last seven months.

OK, but who didn’t know that?... It’s the vol where the picture is drawn and the conclusion is made. Let’s turn to the two-year IV30™ chart in isolation.



I have circled the last seven earnings cycles (plus the one today). Though the pattern is rough, recently it has essentially seen the implied rising to higher levels with each earnings cycle. The option market reflects greater risk in AAPL for each earnings cycle. A fair question is, “is this warranted?”

Here is the resounding yes. Below I have included three charts.

(1) The HV360™ for AAPL vs the HV360 for SPY. HV360 is the historical (realized) volatility of the stock over the last 360 trading days – which is about a 1.5 year average (there are 252 trading days a year).
(2) Same chart, but using HV180™ (~9 month average)
(3) Same chart, but using HV120™ (~half a year average)

You may wonder, “why, Ophir, did you put three charts with three different historical vol measures?” The answer is, because I’m not cherry picking – it’s consistent from a six-month moving average to 1.5 year moving average. This is a real and tangible (and large) risk divergence from the market.

For all the charts, the yellow curve represents the SPY (S&P 500).

HV360™


HV180™


HV120™


We can see for all three time-periods, that as the market realized vol has been declining abruptly (the yellow curve) AAPL’s realized vol has been increasing and diverging immensely from the market. In English, AAPL has become more and more risky, while the market has become less and less risky.

It’s important to understand the context of the rising implied vols in AAPL into earnings. These implieds are rising (from earnings to earnings) while the market is less and less risky. It’s also interesting to see that the implieds (future looking risk) in AAPL are rising as the historical vols (realized vols) are also rising.

So what?...

AAPL has become remarkably more risky in the last two years relative to the overall market. It has gone from the leader in worldwide technology to a laggard in certain areas that they in fact invented (aka iOS as one example). The higher implied vols reflect that risk and they are justified with the massive divergence in the historical (realized vols).

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



We can see the ATM straddle ($405 strike) in the weeklies is pricing in a ~$30 move off of the report (one standard deviation) and a $60 move within two-standard deviations.

Nobody really knows how the market will respond. It feels like AAPL might even rebound big if they can squeeze out any good news (which they very well may). But this is not the same company they used to be. Their leader is no longer with us. And a 40% drop in the long-term is not necessarily the limit to the downside.

As for tomorrow’s reaction to today’s news (earnings), I’d say watch for over optimism and over pessimism. In other words, watch for a big move off of little news, and an even bigger move off of big news. Long-term – this is a risky stock that has diverged so violently from the rest of the market that it must be considered a different entity than it once was.

Caution to all sides and all trades in this one. Not just today, but for the next… forever…

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This is trade analysis, not a recommendation.

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Millennial Media (MM) - Vol Explodes into Multi-year High Territory; Stock Down 70% in Two-Years with Earnings Out Soon

MM is trading $6.21, down 3.0% with IV30™ down 0.8%. The LIVEVOL® Pro Summary is below.



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Millennial Media, Inc. (Millennial Media) is a mobile advertising platform company. Millennial Media technology, tools and services help developers maximize their advertising revenue. The Company’s technology and data platform, known as MYDAS, determines in real-time which ad to deliver.

I found this stock using a real-time custom scan. This one hunts for elevated vols. This is a very compelling vol story where the implied is now trading fantastically above multi-year highs with earnings still quite some time away.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated to its own annual history (at least in the 80th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The two-year MM 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).



On the stock side we can see an abrupt loss of shareholder value – this was an $18.66 stock two-years ago and is now trading at about a 70% discount to that. I also note the huge gap down off of earnings on 2-20-2013 when the stock dropped from $14.33 to $8.95 in a single day.

But, this is a vol note, so let’s turn to the two-year IV30™ chart, below in isolation.



Here’s the story. While MM has earnings due out on 5-8-2013, the vol is already way into multi-year high territory. Given that earnings are still three weeks away, I expect that vol number to rise quite a bit more, unless the vol is rising due to an event outside of earnings. The blue “E” icons denote earnings dates, and we can see very clearly how much higher the vol is today than in prior earnings cycles.

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



Across the top we can see May vol is priced to 104.05% while Jun is priced to 85.33%. That vol diff of course is due to earnings. This is a very compelling vol story where the implied is now trading fantastically above multi-year highs with earnings still quite some time away. The last earnings release and really the performance of the stock over the last two-years give reason for the elevated vol. But should it be this elevated?... I dunno, I guess we’ll see…

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Overstock.com (OSTK) - Stock Rips for Second Day; But this Time, Vol Pops; Takeover Spec May Be the Culprit?

OSTK is trading $18.27, up 16.4% with IV30™ up 19.6%. The LIVEVOL® Pro Summary is below.



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Overstock.com, Inc. (Overstock) is an online retailer offering discount brand name, non-brand name and closeout merchandise, including bed-and-bath goods, home decor, kitchenware, furniture, watches and jewelry, apparel, electronics and computers, sporting goods, and designer accessories, among other products.

This is a vol and stock note on a company that was trading at $11.46 two days ago and is now 60% higher off of earnings (sort of). Let's take a peak at a news snippet from yesterday and then get into the option and vol "stuff."

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What: Shares of Overstock.com were going through the roof today, climbing as much as 36% after thrashing earnings estimates in its first-quarter report.

So what: The online retailer, which has struggled to turn a profit against the likes of Amazon.com, posted net income of $0.32 a share in the quarter, up from $0.12 a year ago, and well ahead of analyst estimates at $0.13. Revenue also flew past expectations of $282.3 million, climbing 19%, to $312 million. Gross margin improved by 80 basis points, to 18.9%, and nearly all the revenue gains came from fulfillment partner relationships and growth in order size. Management did not provide comment in the press release.

Source: The Motley Fool via Yahoo! Finance; Overstock.com Shares Jump on Strong Earnings, written by Jeremy Bowman.
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What's interesting here is that OSTK popped from $11.46 to $15.70 off of earnings and the implied dropped from 65.99% to 47.66% (which is normal). What's a little "less normal" is that the stock is up an additional 16.4% today and IV30™ is now up nearly 20% to 57%.

Let's turn to the two-year Charts Tab 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 we can see two phenomena:

(1) The stock is now at a multi-year high and has popped on two consecutive days.
(2) The stock does have a tendency to gap off of earnings --check out the moves in stock price with the blue "E" icon (denoting earnings).

Let's turn to a one-year IV30™ chart in isolation, below.



We can see the dip in vol when earnings came out on the morning (BMO) of 4-18-2013. But we can also see the rise in the implied today. This is an odd one -- the news is out (and it's good), the stock had reacted, the vol dropped... OK, that's called a good earnings report. But then today, the stock gapped again, and the vol rose. There may have been some analyst upgrades, but, that's kinda irrelevant after a firm posts the earnings (no offense intended). Something else is going on...

I have included the Skew Tab, below.



The red curve represents May vol and the yellow curve represents Jun. I note the upward sloping OTM call portion of the May (red curve) skew. This upward slope is not "normal" in that OTM calls are normally priced below ATM options. Further, it's unusual for OSTK, which just a month ago showed a downward sloping OTM call skew (which is normal). I gotta say, this second day stock pop and skew shift kinda feels like takeover spec. Founded or unfounded, it just does...

Finally, let's turn to the Options Tab.



Across the top we can see that May vol is priced to 56.51% while Jun is priced to 52.28%. But, look at the OTM call vol difference. The May/Jun 22.5 call spread shows 7.5 vol point diff (compared to a 4 point vol diff for the ATM calendar spread). Again, this feels like takeover spec pricing -- which often (usually) turns out to be nothing. But sometimes... it doesn't...

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