Blackstone Group (BX) and VIX - What’s happening in the VIX and LEAPS Right Now? BX and VIX – A Case Study in Contango

BX closed Monday trading at $22.86,down 0.85 with IV30™ up 3.9% in a market that saw the VIX fall again (by 1.2%). The LIVEVOL® Pro Summary is below.



The Blackstone Group L.P. (Blackstone) is a manager of private capital and provider of financial advisory services. The Company is an independent manager of private capital worldwide, with assets under management of $210.2 billion as of December 31, 2012.

Let’s start with the Skew Tab for BX, below, to examine the month-to-month and line-by-line vols.



Lots of colors and lots of lines, but with a little direction it’s actually not convoluted at all. At $23 on the horizontal axis (which is ATM) go up from the bottom curve (green). The colors you will hit in order are:

(1) Green
(2) Blue
(3) Pink
(4) Brown (or whatever color that is)

Translating those colors to expiries reveals a pattern:
(1) Sep 2012
(2) Jan 2014
(3) Mar 2014
(4) Jan 2015

Or, in English, as we move from shorter expiries to longer-term expires the volatility monotonically moves higher. So the option market reflects more risk in a rather orderly fashion from the short-term through the intermediate-term and into the long-term.

OK… Is this unique to BX? Actually, no… And there are several ways to see this. Let’s start easy – let’s look at VIX options and back out the futures’ price.




Assuming essentially zero interest (which for this purpose is acceptable) we can see that the VIX forward price is higher with each expiry. Quick, back of the envelope math:

Forward VIX price = Strike + Call – Put
------------
Oct Forward VIX price = 16 + 1.65 – 2.20 = 15.45%
Nov Forward VIX price = 16 + 2.25 – 1.95 = 16.30%
Dec Forward VIX price = 17 + 2.30 – 2.47 = 16.83%
Jan’14 Forward VIX price = 18 + 2.47 – 2.80 = 17.67%

All of those levels are remarkable given that VIX spot closed at 11.84% today, but in any case, we see the same monotonicity. Further out = higher expected vol. So, BX is behaving like the broader market.

Let’s look at a BX and SPY vol chart (which is roughly equivalent to a BX vs. VIX chart) and let’s only focus on further out terms: IV120™, IV180™ and IV360™.



The greenish guys are BX the bluish guys are VIX. But focusing in each group by themselves, we can see that for both: IV120™ < IV180™ < IV360™. Again, further out expiries show greater vol. Looking a bit more myopically we can see that the spread between IV180™ and IV360™ is greater than the spread between IV180™ and IV120™. Or, in English, the one-year implied vol for both the VIX and BX show greater divergence from the half-year implied vol than the 120-day implied does. The real question then becomes, is vol really going to rise as we go further out in time? Well, there’s reason to believe it will, and the five-year VIX chart demonstrates this reason.
Provided by Yahoo! Finance

Each time the VIX peaked, it crashed for an extended period of time. Or, with a different perspective, each time the VIX has been depressed for a long-period of time, it has rapidly peaked. I’ve highlighted the last three peaks and we can see quite clearly how the VIX then made its way down. One point I do note, a VIX in the 11% range is lower than the other lows.

So, what to do if you like buying LEAPS? Vol is elevated to the back months – clearly. But, here’s the trick, LEAPS are elevated relative to the front, but the front is extraordinarily depressed. That means the comparison is to a low number. Check out the two-year chart of BX IV360™, below.




I’ve drawn that red horizontal line from the current IV360™ back in time. We can see just a couple of blips when the long-term implied was below its current value. So… now what?

Well, the back is elevated to the front, that’s for sure. There is contango in the VIX, that’s also for sure. But… for you LEAP buyers (which makes you big time vega buyers), this is one case where “elevated” vol actually still feels depressed.

I’ve included the identical picture below for the VIX for a broader view of the market (but this is only one-year of history; Livevol® does not provide two-years of VIX IV360™.



Same trick here… Yes there is contango in the VIX, but so what?... The long-term implied volatility is essentially at an annual low.

So, final conclusion? If you’re a vega buyer in LEAPS, don’t stop your analysis at the contango effect, there’s more to it. I don’t know if vol will go up or down from here, but for the last one to two years, LEAPS haven’t looked much cheaper than they do now.

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.

This is trade analysis, not a recommendation.

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YELP - Stock Erupts (Twice) on Earnings; Volatility Dives then Pops. Something’s Goin' On

YELP closed Friday trading at $57.02, up 10.7% with IV30™ popping 29.2%. The LIVEVOL® Pro Summary is below.



Yelp Inc. connects people with great local businesses. Its users have contributed a total of approximately 36.0 million cumulative reviews of almost every type of local business, from restaurants, boutiques and salons to dentists, mechanics and plumbers. Its platform provides local businesses with a range of free and paid services, which help them to engage with consumers at moment when they are deciding where to spend their money.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. But, there is so much more going on with this company beyond the one-day vol pop.


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

Let’s start with the six-month 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 the stock is up from ~$20 just six months ago and Y-O-Y is up from $22. So, rip roaring returns to say the least. But the stock movement went from deliberate and up, to abrupt and up in the last two days. The first catalyst was earnings – Wall St. liked it… a lot. The stock popped from $41.80 to $51.50 or ~25% in a day. Very nice. We can also the implied dropped after earnings – very normal and expected.

But then… today happened. The stock went from $51.50 to $57.02, making the two day gain more than 36%. But here’s the really odd part… Not only was the reaction to earnings a stutter-step, the vol reversed its decline and popped back up nearly 30%... huh?

A great way to examine this vol crush and rise is through the Skew Tab. First, let’s turn to the Skew Tab as of the close on Thursday.



We can see the front month ended right on top of the back month, crashing down from its highs pre-earnings. But then… today happened…

Let’s turn to the Skew Tab as of the end of trading on Friday.



All of a sudden the front month has popped right back up, almost like its pre-earnings levels. Something happened today that not only pushed the stock higher (after a 25% pop he day before), but now reflects more risk in the option market. This one, I must say, is an odd ball. I haven’t seen many of these reactions in a non-bio-tech in a while. So, good or YELP stock, but more risk indeed.

Finally, let’s turn to the Options Tab, below.



On close of Friday we can see Aug vol is priced to 69.06% while Sep is priced to 63.33%. Here’s how that pair of months traded for the last three days (on close).

Wednesday
Aug: 95.69%
Sep: 65.83%

Thursday
Aug: 50.91%
Sep: 51.15%

Friday
Aug: 69.06%
Sep: 63.33%

Look at the volatility level for the Sep options the day of earnings and today. They’re almost unchanged. This elevated risk in YELP has permeated not just the short-term (Aug vol) but also the intermediate-term (Sep vol). Something is up, and it’s more than earnings, the stock price and the volatility. I’d keep an eye on this one.

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.

Mosaic (MOS) - Volatility Explodes; Stock Collapses on Cartel News; Calendar Vol Diff Opens

MOS is trading $41.88, up 1.92% with IV30™ down 4.1%. The LIVEVOL® Pro Summary is below.



The Mosaic Company (Mosaic) is a producer and marketer of combined concentrated phosphate and potash crop nutrients for the global agriculture industry. It is a single source supplier of phosphate-and potash-based crops nutrients and animal feed ingredients.

I found this stock using a real-time custom scan. This one hunts for calendar spreads between the front two monthly expiries. While there is a nice calendar diff to examine, this one has a much bigger underlying story.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

Let’s start with the Skew Tab to examine the month-to-month and line-by-line vols.



We can see two phenomena:
(1) Aug vol is elevated for all strikes relative to Sep.
(2) Aug vol has a decidedly upside bend to the skew, reflecting greater upside potential in the near-term than downside risk.

But there’s a huge story underlying this firm and many others in the potash biz. On 7-30-2013, in news from The Motley Fool I found that the world’s largest Potash producer broke up a cartel with Belarus that controlled almost 50% of global exports. The reaction was been abruptly poor for MOS – ~20% drop or $10 in stock price as potash price concerns are running wild.

The two-year MOS 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 this was a $68.84 stock two years ago. But really, the story is more myopic than that. Checkout that collapse on 7-30-2013 I referred to. Yikes…

The stock drop was met with a huge amount of confusion or at least lack of clarity and we can see that in the volatility. I have included the two-year IV30™ chart below in isolation.



Two phenomena here strike me as noteworthy:

(1) The obvious explosion off of the cartel news. That’s a stock drop and a vol pop and it means risk (read: uncertainty) is here for now.
(2) Although the level in the implied is an annual high (after the cartel news), this name has actually seen higher levels of volatility in the last two years. In fact, the vol has been substantially higher, reaching just under 73% in October of 2011 (compared to 46.5% right now).

So what? Well... the uncertainty from the news hurt the stock, popped the vol, then today sort of gave way to calmer heads as the implied did dip a little. I just note that this level of vol is not unprecedented and there is grounds to believe it could go even higher. But obviously there’s no way to predict the future. In my opinion, closure has not come in on the news and that means equilibrium has not been reached and that means risk…

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



Across the top we can see the monthly vols are priced to 50.13% in Aug and 41.68% in Sep. It’s that volatility divergence that triggered the calendar spread scan. But as I’ve said two times before and now for a third, there’s a lot more to this than just a calendar vol diff.

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.

NQ Mobile (NQ) - Volatility Exploding, Stock Exploding, Earnings Coming

NQ is trading $15.95, down 1.2% with IV30™ up 0.7%. The LIVEVOL® Pro Summary is below.



NQ Mobile Inc. (NQ), formerly NetQin Mobile Inc., is a holding company. The Company is a global provider of mobile Internet services focusing on security, privacy and productivity. The Company is a provider of Freemium subscription services with approximately 242 million registered user accounts in over 150 countries.

This is a vol note -- a rather explosive one along side some explosive stock moves of late. All of these phenomena are in the backdrop of an earnings release 8-12-2013 (BMO), or in English, in twelve days.

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



One year ago this was a $7.82 stock, so it has seen more than a 100% rise in the last twelve months. But, as we can see in the stock chart, that's not the eye-popping part. Look at the stock rip of late. On 6-24-2013 this was a $7.38 stock. Now, just six weeks later, the stock is up more than 115%. Whoa...

And what about the volatility... yeah... what about it?... let's turn to the one-year IV30™ chart, below.



On 7-18-2013 the implied closed at 72%. Today we see it trading over 135%. So a 90% (ish) increase in thirteen calendar days. The vol rise is in coincidence with the stock rise, so I'm not buying the idea that this is simply a reflection of the earnings announcement due out in a couple of weeks. In fact, the prior high in IV30™ into an earnings announcement (before this one) was 110%. We're already 25 vol points higher (actually it's 27 vol points a I'm writing this article) with quite some time before the actual earnings date.

This is both a phenomenally high stock price and volatility level for NQ. The 52 wk low in IV30™ is 64.02%.

Finally, let's turn to the Options Tab.



Across the top we can see that Aug vol is priced to 146.56% and Sep is priced to 119.95%. The Sep number is quite elevated to the vols in the last year, not to mention Aug, which is in its own world.

This is one to watch... right now...

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.

Visa (V) - Volatility Explodes on Judge's Ruling; $16 Billion in Transaction Fees for Industry at Risk, MA Seems OK

V is trading $181.97, down 4.9% with IV30™ up 55.4%. The LIVEVOL® Pro Summary is below.



Visa Inc. (Visa) is a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories to fast, secure and reliable electronic payments.

So the news / ruling is out today, and it's a good one for consumers and a bad one for debit card providers. In one of the greatest businesses of all time, debit card providers (read V, MA) basically take money from retailers just b/c they can in baby increments per transaction amounting to $16 billion annually in fees. Yeah, 'B'illion.

Here's the news from a great story in Bloomberg:

---

U.S. District Judge Richard Leon in Washington ruled today that the Fed considered data it wasn’t allowed to use in setting a 21-cent cap on debit-card transaction fees under the Dodd-Frank law. Leon said the rule, in effect since October 2011, would remain in place until the Fed drafts new regulations or interim standards.

“The board has clearly disregarded Congress’s statutory intent by inappropriately inflating all debit-card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction,” Leon said in his ruling.

The decision, unless overturned on appeal, will force regulators to revisit rules that bankers said would cost them 45 percent of their swipe-fee revenue. Lenders collected about $16 billion annually from those fees before the Fed’s regulation and responded by cutting back on perks such as rewards programs and free checking to soften the blow to their profits.

‘Too Much’

“This is clearly saying 21 cents may be too much,” said Nancy Bush, an analyst at SNL Financial LC, a bank research firm in Charlottesville, Virginia. “You’ll have to go back to the drawing board and figure out how much a debit-card transaction actually costs and is there going to be some kind of premium paid to that.”

Source: Bloomberg News; Fed’s Debit-Card Swipe-Fee Rules Rejected by U.S. Judge, written by Tom Schoenberg.
---

Well there you have it. This reminds me of the credit ratings agency story when the government walked away from settlement talks and announced that they would be seeking 10 figures in retribution for the housing debacle. You can read the article I posted on that by clicking the title below:

McGraw Hill (MHP) - Vol Explodes on News of 10-figure Law Suit; S&P Needs to Burn on This One (and so does Moody's)

If you haven'tread that one, I think it's worth your time...

Interestingly, MA is in the same boat as V, but they just released good earnings this morning.  In the face of the news and the earnings, MA is up nearly $9 as of this writing and the volatility is down.

Anyway, let's get into the options analysis of V today starting with 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).



On the stock side we can see the incredibly consistent move up in price. Two years ago this was an $85 stock. Today, even after the drop, it's trading above $180 for more than a 100% return in that time frame. That remarkable up trend and return with equally remarkable low volatility is in great part due to the steadiness of the revenue source (and costs) for V. Transaction fees are easy to predict (until now) and the cost doesn't change that much. It's a beautiful business model, until someone judges it as unfair.

Let's take a look at the one-year IV30™ chart in isolation, below.



We can see that the news today has pushed the implied well into annual high range. In fact, in Mar of this year, the IV30™ hit a low of 14.98%. Whoa... Even now, this is just a 28% vol stock -- not exactly mind blowingly high. That speaks to two things:

(1) The news today is market moving but at this point is not at all catastrophic.
(2) The news today does introduce a new level of uncertainty as reflected by the option market.

Let's look to the Skew Tab, below.



We can see a monotonic vol decrease from the font to the back reflecting less risk in the future than right now. That's interesting considering this news isn't fully digested or complete -- there are more rulings, more pricing, more arguments to be made. I also note the parabolic skew in the front month reflecting both the upside and downside tail risk in the near-term. I dunno... Lower vol in Sep, huh?...

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



Across the top we can see that Aug is priced to 30.71% while Sep is priced all the way back down to 24.09%. Hmmm....

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.

Synta Pharma (SNTA) - Stocks Pops, Vol Pops on Cancer News; Implied Vol is Sleepy, Stock Isn't...

SNTA closed Monday trading at $7.15, up 41.3% with IV30™ up 28.8%. The LIVEVOL® Pro Summary is below.



Synta Pharmaceuticals Corp. is a biopharmaceutical company. The Company is focused on discovering, developing, and commercializing small molecule drugs to severe the medical conditions of the patients with cancer and inflammatory diseases.

This is a note on a bio-tech which let out unexpected news and popped b/c of it, while the volatility rose with the equity price.

Let's start with some news from Monday:

---
What: Shares of biotechnology company Synta Pharmaceuticals Corp. soared a whopping 43% today, after results from a mid-stage study of its drug ganetespib in breast cancer patients warranted an expansion of the study.

So what: Synta said that ganetespib helped enough patients with triple-negative breast cancer to support a second stage of the trial, reinforcing optimism over the drug's blockbuster potential of treating different types of cancers. In fact, according to the American Cancer Society, triple-negative breast cancer is particularly fast-spreading and difficult to treat, so the surprising results should help Synta garner some big-pharma partnership support as well.

Source: The Motley Fool via Yahoo! Finance: Why Synta Pharmaceuticals Corp. Shares Skyrocketed, written by Brian Pacampara.
---

So, before we get into finance stuff, let's just take a break and read the news... Forget shareholders, stock prices ad money, let's just hope this drug turns out to be as successful as the initial results point to.

OK... Onto finance stuff again...

This is an incredible vol story. Let's start with the one-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 how this $0 (zero) revenue bio-tech fell from ~$11 to ~$3.50 in just the span of a few months. With the last gap down (May/Jun of this year) we can see the implied collapsed as well. The risk reflected by the options dropped as the reality of the stock's future seemed destined to be... not a future..

Let's take a closer look at the IV30™ in isolation in the one-year chart below.



It's much easier to see the vol collapse here after the bad news (and stock collapse). More interesting though, is the continued drip-drop of the implied down to right around 60%. I have drawn that yellow horizontal line in the vol chart to indicate how low the volatility reached just before the news on Monday. What's also interesting to note is that with the news today, the stock popped and the implied did too. So, first we had stock collapsing with vol collapsing in coincidence, and now we have the total opposite.

Let's turn to the Options Tab as of the close on Monday.



We can see that the ATM straddle for SNTA in Sep is ~$1.70. The monthly vols by expiry are priced to 91.90%, 84.46% and 90.81% for Aug, Sep and Nov, respectively. Even with the IV30™ pop today, the implied is trading in just the 21st percentile (annual). The vols feels sleepy in this one... the stock, not so much...

UPDATE 7-30-2013: I am now long deltas in SNTA.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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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.

Apple (AAPL) - Post Earnings Analysis; Risk Paradigm Shift Over; Now the Market Gets It

AAPL is trading $447.59, up 1.5% with IV30™ up 4.8%. The LIVEVOL® Pro Summary is below.



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.

This is a post earnings note -- a follow up the pre-earnings note. You can read that note by clicking on the title, below:

7-23-2013: Apple (AAPL) - Earnings Preview Reveals Lots of Information; But There is No More 'Old AAPL' -- That's Not Good or Bad... It Just is.

I have also written extensively about AAPL prior to that, and you can read any of those recent posts below by clicking on the titles:

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

1-23-2013: 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?

But let's focus on the last earnings report, and then turn to the option market to complete the picture.

Earnings Results from July 2013
EPS: $7.47 vs. $7.31(est)
Revenue: $35.3B vs. 35B (est)
Gross Margin: 36.9% vs. 36.7% (est)
iPhone Sales: 31.2 million units vs. 26.5 million (est); BUT, average selling price down ~ $32.
iPad Sales: 14.6 million vs. 18 million (est)
New Product Release: ? Coming at end of year?

So those numbers don't really mean anything without some words behind them. First, AAPL's big story for along-time for AAPL was gross margins and they have finally broken below the 40% level (which some think is a 'magical' level). Some of that came from depressed iPhone sales prices even though the number of units sold was higher than expected. But.. it's not what you think. iPhone is losinig market share. Here's a snippet from an in Investors.com article:

---
Apple's (AAPL) share of the global smartphone market shrank in the second quarter as major rivals like Samsung and LG shipped many more units than the iPhone maker.

Market research firm IDC late Thursday reported that worldwide smartphone shipments rose 52.3% over the year-earlier period to 237.9 million units. Apple, however, posted the slowest growth of the top five vendors at 20%. Apple's market share sank to 13.1% from 16.6% a year ago.

Apple remained the No. 2 vendor behind South Korea-based Samsung, which garnered 30.4% market share on unit shipment growth of 43.9%.

Apple smartphone market share at lowest level in 3 years , written by Patrick Seitz.
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The Tablet market (iPad for AAPL) performed well below expectations. But that's not the big news either (IMHO). The biggest news seems to be that the company again (now for the second year) is saving their "big surprise" product news for the end of the year. Some analysts feel last year's move to do the same was a major mistake and may have cost the firm billions in sales. Well, whatever you think, they're doing it again.

None of this is catastrophic, it's just a reminder that AAPL isn't the same company it used to be.. And btw, at $420 billion in market cap, how could it be?

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 the incredible run to what is now the famous (infamous?) run to $720 and then the drop to at some points below $400. I've highlighted the most current stock price movement simply to point out that the volatility has sort of dried up -- the stock is in a "quiet period," even with two earnings releases. That's an equilibrium.

Let's turn to the two-year IV30™ chart below in isolation, to examine the volatility.



I've drawn that horizontal orange line to show how depressed the implied is right now. The interesting thing is how he option market reflects future risk for AAPL compared to the realized historical volatility (obviously that would be the past).

HV60™: 22.69%
HV180™: 33.53%
HV360™: 30.79%

We can see that the HV60™ (which covers 60 trading days) is really quite low at ~23% compared to the longer term measures. The longer term measures (HV180™ and HV360™)  incorporate the stock volatility as the market in whole was learning that AAPL had become a different company --that the risk paradigm had shifted and no one knew what that meant.

But today, AAPL is no longer seen as the singular technology innovator of the world. It is no longer seen as a stock driven wildly by a new product releases. It's a $400 billion Goliath, that pays a hefty dividend, has a stock buy-back program and just ain't all that sexy anymore -- at least compared to the old days.

The IV60™ (so the risk reflected by the option market for the next 60 calendar days) is 22.15%, almost identical to the HV60™. Finally, it seems, an equilibrium is forming -- smaller stock price movements (see circled part in the stock chart above) and the similarity of HV60™ and IV60™ -- the past risk and the future implied risk are priced the same.

I said before in Dec 2012 that "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." Well, that's over. The market does get it. AAPL is slower, bigger, and without Steve Jobs.  That's now the equilibrium resting point.. finally.

Anyway, that's my take on it...

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.

Facebook (FB) - Stock Rips on Earnings; But Nobody Gets the Volatility... At All...

FB closed Thursday trading at $34.36, up 29.6% with IV30™ down 13.8%. The LIVEVOL® Pro Summary is below.



Facebook, Inc. (Facebook), is engaged in building products to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

As I’m sure we all by now, the catalyst was quite simply earnings. FB made a big bet that mobile ads were the next big thing, and in the face of some hefty criticism Mark Zuckerberg was proven right… to the tune of a 30% gap up on earnings. Not only were revenues and profits higher than expected, but cost savings through synergies that bet on the mobile ad world also kicked in. In terms of a management grade, this bet was a screaming A+ so far.

But I want to talk about the volatility, b/c I think there’s something here that is going unnoticed. Let's start with the one-year FB 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 the downward spiral the stock realized post IPO, including that nasty gap down after its first earnings release as a public company. But since then there has been a recovery, noted most spectacularly by the earnings move on Thursday.

But let’s look at the vol in isolation. I have included a one-year IV30™ chart below.



We can see the hypnotic ebbs and flows (actually flows and ebbs) into and out of earnings. Note that for each of the last four earnings cycles (which is all of them), that the vol peak was lower monotonically (the blue “E” icons represent earnings dates).

This monotonic vol decrease into earnings is the first vol phenomenon I noticed. FB’s first earnings release was a major unknown post IPO, but since then the firm has not been less risky (IMHO), rather more risky with several questions about the firm’s future and projections. I’ve seen research reports which stated that FB would need 100 billion users to reach the sales figures that justify their P/E (and that’s before this pop on Thursday). Considering there are only 6.6 billion people in the world, I’m guessing FB will not reach 100 billion users (and yes, I know businesses use FB too – don’t be like that).

The news today points to how much we don’t know about FB. That’s not (necessarily) a reflection of opaque financial reporting, it’s simply a reality that no one has ever seen a social media site this big. We have no idea where it’s going. We have no idea if Mark Zuckerberg is right. He doesn’t even know if he’s right (but he was right last quarter, that’s for sure).

The company has a P/E higher than 99% of the S&P 500 – I read that in a Bloomberg News article written by David De Jong in New York. All of this leads to me to simple question, forget earnings vol crushes and stuff, why is the volatility systematically getting lower? I have no idea.
But there’s even more… Let’s turn to the Skew Tab, below.



We can see I have included seven expiries on this chart – weeklies and monthlies. The incredible phenomenon here is that there is a monotonic decrease in vol as we go further out. Or, said differently, the option market continues to reflect lower risk in FB shares in the future. I just don’t get that… And judging from this earnings release, no one else does either.

If you have thoughts on FB and the rip roaring success of earings and the volatility, there is an open thread right now on the Livevol Community. Tell the community what you think.

Livevol Community : Your Voice, Your Ideas. Heard by Thousands. Shared by Millions.

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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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.

ONEOK (OKE) - Stock Pop Reveals Potential Information Leak Ahead of News; How to Make $3.3 million in 17 Days

OKE is trading $51.58, up 20.4% with IV30™ up 17.7%. The LIVEVOL® Pro Summary is below.



ONEOK, Inc., is a diversified energy company. The Company’s segments include ONEOK Partners, Natural Gas Distribution and Energy Services.

This is an order flow note – or more specifically an order flow not that calls upon some highly unusual trading ahead of what has turned to be market moving news. OKE is ripping on news that it will spin off its gas distribution business. So an event / announcement that was likely discussed internally before today.

Let’s start simple. OKE has averaged 1,747 calls traded a day over the last three months. The Stats tab is included below.



OK. Now let’s look at the Options Tab from 7-8-2013, below.




So the stock price closed at $41.42 (at the top) and check out the volume in the Aug 45 calls: 6,346 calls traded on OI of just 142. The following day that OI went to 5,544. I have included the OI chart for just that option, below.



The OI jumped on 7-9-2013, reflecting the volume on 7-8-2013. That trading turned out to be opening call purchases for ~ $0.50 for ~$275,000 “investment.”

And today…



We can see those Aug 45 calls are now worth ~$6.50 turning that $275,000 bet into a $3.58 million position, or ~ $3.3 million gain (1,100%) in seventeen days.

How fortunate.

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.

GameStop (GME) - Vol Pops. Stock Hits Multi-year Highs, Earnings Approach

GME is trading $43.93, up 3.6% with IV30™ up 11.6%. The LIVEVOL® Pro Summary is below.



I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. But there's a lot more going on here than rising vol on the day.

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

Let's start with the two-year GME 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 that GME is at or near multi-year highs; we're talking four + years. But this is also a vol story, so let's look to the two-year IV30™ chart in isolation.



Before the pop today, we can see that the implied has been trending down almost unabated. Even with the poo today, the implied is trading in the 23rd percentile on an annual basis. Let's add tot he equation that GME has earnings due out near the end of Aug expiry and we see a stock at multi-year highs with depressed vol and earnings approaching.

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



Across the top we can see the monthly vols are priced to 37.95% for Aug and 40.92% for Sep. That vol diff likely points an earnings release just outside of Aug expiry ad in the early portion of Sep expiry -- but that's just a guess. It will be interesting to see if GME continues its upward march in stock price into the earnings announcement and how the vol moves with the stock. Certainly the expectation is substantially higher vol as earnings approach -- perhaps is the first day of many vol pops... Or not...

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.

Apple (AAPL) - Earnings Preview Reveals Lots of Information; But There is No More 'Old AAPL' -- That's Not Good or Bad... It Just is.

AAPL closed Monday trading at $426.31, up 0.3% with IV30™ nearly unchanged. The LIVEVOL® Pro Summary is below.



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.

This is an earnings note, or really, a pre-earnings analysis. I have written extensively about AAPL and you can read any of those recent posts below by clicking on the titles:

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


1-23-2013: 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?

The point of all of the stuff above, although I used a great deal of detail, was simply to say that AAPL is a different company than it once was. The price drop and volatility movement show that -- it is tautological.

Now we look at the stock on the day of its earnings release, and we will see yet again, that AAPL is a different company. It is no longer seen as the technology innovator of the world. It is no longer seen as a stock driven by a new product release. It's a $400 billion Goliath, that pays a hefty dividend and just ain't all that sexy anymore -- at least compared to the old days.

Let's start with 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).



So, we know the stock story.. It went up a lot, then it went down a lot, then it stopped doing both and has been hangin' near $400 for a while. That quiet period of late is not trivial -- it's actually the meat of the story. But it takes the option market to fill in the rest.

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



The blue "E" icons represent earnings dates. I have circled the IV30™ levels for the prior seven earnings cycles and as of the close on Monday. Then I've drawn that horizontal line from the current vol level back in-time so it's easy for us to see how depressed the current vol is all prior seven earnings cycles. In fact, on an annual basis, as of Monday's close, AAPL's IV30™ is in the 38th percentile -- so it's depressed to it's own history over the last year by a fair amount (the 50th percentile would be the median).

So what? It ain't about the iPhone 926 or the iPad 1456 or the iGlases 1 or whatever... This is a stock that pays a 2.8% dividend, has announced a stock buy-back and has and HV30™ of 20.27% and an HV60™ of 22.14%. The HV180™ (which covers 180 trading days or ~9 months) is 33.20%. The stock is less volatile and clearly is using it's cash in ways outside of product development (exclusively). There is no more Steve Jobs, and so there is no more old AAPL. That's not good or bad... It just is.

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



As of Monday's close we can see that the implied move in the options off of earnings is ~$20 or a little under 5%.

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.

Skechers USA (SKX) - Stock Rips, Earnings Approach, But the Volatility Disappeared

SKX is trading $27.02, up 1.1% with IV30™ down 2.2%. The LIVEVOL® Pro Summary is below.



Skechers U.S.A., Inc. (Skechers) designs and markets Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under several lines. In addition to Skechers-branded lines, the Company also offers a branded junior line.

I found this stock using a real-time custom scan I built. This one hunts for calendar spreads between the front two monthly expiries. But the company has earnings due out on 7-24-2013 (in two days), so of course there is a calendar volatility difference. That’s not the issue… It’s level of the vol – how low it is, that is fascinating.

The two-year SKX 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 sort of a sleepy first year (remember that for later), but recently an explosion from $15.32 (11-14-2013) to now $27. That represents more than a 75% rise in eight months.

But this is a vol story – kind of a weird one… So let’s turn to the two-year IV30™ chart in isolation below.



Keep in mind that SKX has earnings due out in two days, so the vol should be elevated. But, in fact the IV30™ is in the 39th percentile on an annual scale. So, in English, the vol is actually depressed. I have highlighted with the little yellow circles the IV30™ at the time of earnings for the last seven cycles. Then I’ve drawn that horizontal line to represent the current level. We can see pretty clearly how depressed this earnings vol is relative the last seven quarters.

Then recall what we noticed about the stock price. This was actually a “sleepy” stock for a lot of that prior time period and only recently has boomed to a 75% rise. So, the stock is moving abruptly higher as the vol has hit an eight quarter earnings low. Hmmm…

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



Across the top we can see that the monthly vols are price to 46.28% for Aug and 38.80% for Sep. Considering the annual high in IV30™ is 68.06%, that Aug number feels low… right?... Or, ya know, not…

This is trade analysis, not a recommendation.

Follow @OphirGottlieb

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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.