optionvol-NBC-Bay-Area

--- OVERVIEW --
UBNT is trading $15.91, up small with IV30™ down 1.3%. The Livevol® Pro Summary is included below.



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Ubiquiti Networks, Inc. (Ubiquiti) designs, manufactures and sells broadband wireless solutions worldwide. The Company offers a portfolio of wireless networking products and solutions, including systems, high performance radios, antennas and management tools, designed for wireless networking and other applications in the unlicensed radio frequency (RF) spectrum.

This is a vole note in a dipping stock which has recently (in the last year) gone public. After doing a little reading, I found the controversy surrounding it quite interesting. I’ll include some snippets below from a CNBC article written by Herb Greenberg, but I recommend reading the entire post.

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Since coming public in October, it is one of the lesser-known (not to mention controversial) boom/busts of the IPO class of 2011. After more than doubling since going public, in the past month it has lost more than half its value amid concerns of slowing growth and more controversy.

The controversy started in its IPO prospectus, where the company conceded that some of its networking products had been shipped to Iran (which is banned by the U.S.) without its knowledge “by third parties.”

The Iran issue has plagued the company since, with Ubiquiti Ubiquiti Networks IncUBNT blaming a former Middle Eastern distributor for making the sales. In his own blog, the distributor — who has been sued by the company for not paying his bills — has claimed the company knew about the sales to Iran.

There also are questions swirling around legal issues in South America surrounding one of its largest distributors.


And in the past month or so there were reports circulating that the company had ties to the Chinese mafia — which, according to Forbes, Ubiquiti CEO Robert Pera denied in an internal memo.

Source: CNBC via Yahoo! Finance; Why Ubiquiti Networks Is So Controversial.

---

So we’re talking illegal sales to Iran, legal issues in South Africa and a potential (unconfirmed) connection to the Chinese Mafia. Having said all of that, the stock is down for more tangible reasons. I’ve included more of the article, below.

---
Strip all of that way and there is the thing that counts most — its business, which CFO John Ritchie has described as selling “ high-performance communication platforms to developing emerging markets and underserved and underpenetrated markets.”

On the surface, even with growth showing signs of slowing, it looks like a winner: Fast-growing sales and earnings.

[…]

Tech-focused Saratoga Research, which has had a long-term sell on the company, has focused on several earnings quality issues, including:

The company’s reliance on selling to distributors, rather than to the end customer. Most of Ubiquiti’s sales go through distributors, with two distributors accounting for this “sell-in” method, which is considered aggressive and rarely used by hardware companies. Among the concerns: That it could lead to channel stuffing.
[…]

An increase in account receivable days outstanding in recent months. Over the past few quarters they’ve been increasing. On last quarter’s earnings call the company blamed the increase on a number of things, including factory shutdowns in China associated with the Chinese New Year leading to a quarter that was more “back-end loaded.”

Ritchie hasn’t returned my call, but this is clear: Back-end loaded combined with recognizing revenue on the sale into distributors is always a red flag.
---

--- ANALYSIS --
Let’s turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side, I’ve highlighted the recent drop. There was an initial drop off of earnings, but even after that first abrupt move, the stock has continued to fall. The 52 wk range is [$14.83, $35.99], so the current price is nearing that all-time low.

On the vol side we can see how elevated the implied is relative to the two historical realized vol measures.

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



We can see a rising vol from the back to the front expiries. I do find it a little odd that the front month is so elevated to the second. Obviously we’re close to expo, but it almost feels like the options reflect a volatility event in the next seven trading days (i.e. inside Jun expo). I don’t have any hard evidence of that, though.

--- SUMMARY --
Finally, let’s turn to the Options Tab for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Across the top we can see the monthly vols are 131.36%, 107.18% and 97.26% for Jun, Jul and Sep.

My general feeling about vol is that even though it’s at (or near) an all-time high, it could go higher. Maybe we could so far as to say it should be higher? I dunno... All the research I've down is simply read a CNBC article and look over some vol charts. Whatever the case, a position in this name feels like a pure spec trade, certainly not an investment.

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--- DISCLAIMER --
This is trade analysis, not a recommendation.

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--- OVERVIEW --
TPX is trading $22.63, down 48.2% with IV30™ up 25.6%. The LIVEVOL® Pro Summary is included below.



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Tempur-Pedic International Inc. (Tempur-Pedic International), incorporated in September 2002, is a manufacturer, marketer and distributor of premium mattresses and pillows, which it sells in approximately 80 countries under the TEMPUR and Tempur-Pedic brands. The Company operates in two segments: North America and International.

First, the news driving the stock down nearly 50% (it's earnings / guidance based):

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NEW YORK (AP) -- Shares of mattress makers plunged Wednesday, after Tempur-Pedic projected a second-quarter profit that was less than half the size of what Wall Street expected, blaming a drop in North American sales and spooking investors across the sector.

Tempur-Pedic International Inc., which focuses on pricey mattress models, said it expects its profit to fall about 50 percent from the one it posted in the second quarter of 2011. That implies a profit of about 38 cents per share, while analysts polled by FactSet expected a profit of 86 cents per share.

Source: AP via Yahoo! Finance; Sector Snap: Mattress companies take a fall
---

I actually found TPX using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ LTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

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

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



Though it seems unbelievable, this stock closed at $87.26 on 4-18-2012 -- that same day it hit an annual high of $87.43. Two days later the stock closed at $70.32 after an earnings release. Three weeks after that it closed in the $46 range. Today it's trading at $22.63 (as of this writing), which is more than 74% lower than than it's high in mid April. Ouch...

On the vol side, we can see that the implied began to rise in late Apr / early May, but has spiked today off of the guidance. The vol rise is noteworthy in that the option market reflects greater uncertainty with this disclosure, not less. One could argue that with the earnings report in Apr and the disclosure today, there is more certainty (granted it's of bad news) than there was before today's news. That argument would be in contrast to what the option market reflects. The level of IV30™ today is right on a new annual high (just over 76% in Oct 2011). When looking at the historical realized vols, keep in mind that they are calculated close-to-close, so that blue line for HV20™ will pop tomorrow.

Let's turn to the Skew Tab, below.



We can see how elevated Jun is to Jul and Sep. The risk reflected by the option market is most elevated in the near-term; like one and a half weeks. The spiky shape is simply a reflection of the wide markets -- for example, the Jun 26 calls are $0.50 wide in an option worth $0.50 (using mid-market). Similarly, the Jun 21 puts are $0.60 wide but worth just $0.65 to mid-market.

For a relative comparison, or better said, to see what effect the news today has had on skew, I've included the Skew Tab from yesterday, below.



Notice how smooth the shape is, how the ATM vol levels are very close to each other and how the OTM puts are priced to higher vol than ATM vol and OTM calls (that's "normal"). The skew shape today shows elevated vol in the OTM calls -- a common occurrence after an abrupt move down (reflects risk of a snap back recovery).

To read about what normal skew is and why it exists, you can read this post: Understanding Option Skew -- What it is and Why it Exists

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



Across the top we can see the monthly vols are 90.83%, 75.55% and 73.61% for Jun, Jul and Sep. respectively. Keeping in mind that the annual high in IV30™ is ~76%, that 90% level is quite high for TPX.

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--- DISCLAIMER --
This is trade analysis, not a recommendation.

Legal Stuff:
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--- OVERVIEW --
NTAP is trading $31.60, up 1.5% with IV30™ down 14.7% as of ~10:15am EST. The LIVEVOL® Pro Summary is below.



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NetApp, Inc. (NetApp) is a provider of storage and data management solutions. The Company has a portfolio of application, virtualization, cloud, and service provider solutions. NetApp’s products and services are designed to meet the requirements and service levels of enterprises and their business applications.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

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



On the stock side, we can see the recent gap down off of earnings. The stock dropped from $32.86 on 5-23-2012 to $28.82 the next day on lower guidance. Since then, however, the stock has recovered a bit to $31.60 as of this writing.

On 6-4-2012, Bloomberg came out with an article entitled, “NetApp Near Record-Low Value May Lure Suitors: Real M&A,” written by Tara Lachapelle and Peter Burrows on Jun 4, 2012 1:15 PM PT. You can get to the article by clicking here. The title kinda says it all and it seems that IBM and ORCL have emerged as potential bidders. With this news out there, there is this sort of weird phenomenon where lower NTAP prices might make the price then go higher… if that makes any sense.

On the vol side we can see a steep decline off of earnings (normal), and then a rather abrupt rise after. Today vol is down nearly 15%, though I’m not sure why.

Let’s turn to the Skew Tab to examine the calendar vol diff that the custom scan identified.



We can see two phenomena quite clearly from the skew chart:
1. There is a monotonic vol increase from the back to the front across the front three expiries.
2. There is an upside skew across all three front expiries to the OTM calls. In English, the option market reflects greater upside risk (potential) than downside risk.

I’ve included the Skew Tab as of 5-23-2012 (earnings were announced that day AMC).



The vol diff between the months is normal due to earnings, but note that the shape of the skews is flatter than we see today. The stock drop and the potential for a takeover seem to be affecting the skew shape, and more specifically, the price of the OTM calls.

--- SUMMARY --
Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. Across the top we can see the vols by expiry with 86.58%, 74.23 and 58.18% for Jun08(W), Jun monthly and Jul monthly, respectively. I make particular note of that upside vol diff between the front expiry (the weeklies) and either of the back two.

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--- DISCLAIMER --
This is trade analysis, not a recommendation.

Legal Stuff:
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--- OVERVIEW --
ELN is trading $13.20, down 1.7% with IV30™ up 1.5%. The LIVEVOL® Pro Summary is below.



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Elan Corporation, plc (Elan) is a neuroscience-based biotechnology company. Elan is focused on discovering and developing advanced therapies in neurodegenerative and autoimmune diseases. Elan’s business focuses on neurodegenerative diseases, such as Alzheimer’s disease and Parkinson’s disease; autoimmune diseases, including MS and Crohn’s disease and neo-epitope based targets for treatments across a range of therapeutic indications.

--- ANALYSIS --
This is an elevated vol note on a bio-tech. I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

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

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



I've included the two year chart for a bit of perspective. On the stock side, we can see how ELN was trading in the mid single digits a couple of years back and hit a two year high recently of $15.27. There was a pop on 5-25-2012 -- the news for that move is included below.

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5-25-2012: Elan is seeing notable strength today following Chairman comments on Tysabri Alzheimer drug potential (14.33 +1.14)
ELN is trading nearly 10% higher following comments that included Chairman discussing potential for the co to become a takeover target. (Irish Independent)
Seeing strength following positive comments from CEO Kelly Martin regarding the drug Alzheimer's drug Bapineuzumab, of which the company has a 25% stake

Provided by Briefing.com (www.briefing.com)
---

On the vol side, we can see the abrupt rise in the implied of late. IV30™ was trading at 44.16% on 5-22-2012. As of this writing it's trading at 68.83%, or 56% higher. The implied is now well above the two historical realized measures. Specifically:

IV30™: 68.83%
HV20™: 52.01%
HV180™: 42.86%

It's these values that triggered the custom scan. But, the analysis becomes much more clear when we look to the Skew Tab, below.



Looking the front three months (red, yellow and green, respectively), we can see how the vol rises significantly as we go from the front to the back. This indicates a vol event (risk) that is more likely to occur in Oct than in Jun or Jul. Looking to the fourth expiry (Jan 2013), we can see that the vol drops again to the the Jul (ish) levels. This reflects the likelihood that the vol event is after Jul expiry but before Jan 2013. But, the rising vol right now (i.e. the Jul vol) does reflect the heightened possibility of news coming out inside that expiry. If there was "no" risk of news in Jul, that vol level would be closer to Jun.

Without having done very much research or news hunting at all, it's apparent that there is some sort of expected result or ruling on a drug that may have substantial impact on ELN going forward. Looking back to the vol portion of the Charts Tab above, we can see the vertical axis stops at 70%. Looking back to the Skew Tab, we can see that the near the money options in Oct are priced over 90%.

I do also note the upside skew shape to the Jul options, reflecting greater upside risk (potential) than downside risk. This may indicate two different news events coming out rather than one. Very tricky...

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



We can see the monthly vols are priced to 55.1%, 74.69%, 90.62% and 77.36% for Jun, Jul, Oct and Jan'13, respectively. One last thing I noticed... Check out the Oct 30 calls worth $0.20 (mid-market). This is a $13 stock right now...

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--- DISCLAIMER --
This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

--- OVERVIEW ---
HTZ is trading $11.95, down small with IV30™ down 0.4%. The Livevol® Pro Summary is included below.



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Hertz Global Holdings, Inc. (Hertz Holdings) is a holding company. The Hertz Corporation (Hertz) is its operating company and a direct wholly owned subsidiary of Hertz Investors, Inc., which is wholly owned by Hertz Holdings. The Company owns airport general use car rental brand.

This is a vol note surrounding an epic takeover battle that once settled may see a company that was once bid for $2 actually selling for closer to $90. Let’s look at some news snippets to familiarize ourselves with the story, then look at the vol ‘n stuff ‘n stuff.

--- ANALYSIS ---
Here are some snippets from a Reuters article published on 5-25-2012. While I’m hitting the highlights, a full read is likely in order – it’s very well done.

---
May 25 (Reuters) - Car rental company Hertz Global Holdings Inc is nearing its long-cherished goal of buying out rival Dollar Thrifty, after doggedly pursuing its quarry through a bidding war with rival Avis Budget for several years.

Hertz said earlier this month that it was close to getting antitrust approval - seen as the biggest hurdle to a transaction - having identified a buyer for the assets it needs to divest.

[...]

"This story has been there for a real long time and it is starting to suffer from deal fatigue," said Craig Effron, managing partner at Scoggin Capital Management. Scoggin holds shares of Hertz and Dollar Thrifty.

"Both the parties know what the deal price is going to be at this point. They are just waiting for the FTC to make their decision," he said.

[...]

Hertz and Avis have made several offers for Dollar Thrifty in the last five years. At one point during the financial crisis, Hertz offered to buy the smaller rival for $2 per share.

When Dollar Thrifty halted the sale process in October 2011, Hertz's offer was valued at $66.21 per share.

Dollar Thrifty's stock has since gone up about 30 percent. It was trading at $76.76 on Friday.

"We and most other shareholders will not agree to any transaction that has a 7 in front of it. Low 80s would not do the trick either," Westchester Capital's Behren said.

Source: Reuters via Yahoo! Finance; Is Hertz close to driving away with Dollar Thrifty?, written by A. Ananthalakshmi and Megha Mandavia.
---

They keys here are several-fold:
1. Timing – While the bid seems to be expected soon, it also seems like the FTC approval could push this after June expiry.

2. Effect – What happens to HTZ stock and vol if the bid does come out and is accepted… What if it’s not accepted? What if the FTC ends the fun before it even starts?

3. Likelihood – A quick and dirty way to observe the likelihood of a bid is actually easy – just look at DTG’s (the target) vol. Conveniently, I’ve got that image below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



Looking at the vol, we can see that the implied is elevated to both of the historical realized measures, but look at the actual value. IV30™ is just 37%. The 52 wk range in IV30™ for DTG is [17.57%, 77.23%], putting the current value in the 32nd percentile. The option market is not reflecting a high likelihood of a big event when comparing the current vol to the past year.

With respect to stock price, the 52 wk range is [$50.94, $83.88] with the stock trading $77.48 as of this writing.

With all of that in mind, let’s turn to HTZ and the Charts Tab (6 months). 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 drop in price. Even more interesting is the stock move off of earnings which saw an intraday rise, but ultimately a lower close. Since the earnings report, HTZ has dropped from $15.66 to $11.95 as of this writing. That’s a 24% drop in just over a month. While it’s not entirely clear what’s causing the downturn (other than a dropping overall market), it’s reasonable to guess that a part of the drop can be attributed to this takeover bid news. In English, HTZ stock may be going down in anticipation of the bid it will make for DTG. This may answer the “effect” question raised above.

On the vol side, we can see how HTZ implied dipped after earnings (as expected), but since then has exploded upward from 38.12% (5-4-2012) to now over 69%. That’s an 82% rise in a month. The 52 wk range in IV30™ for HTZ is [36.64%, 92.54%], putting the current level in the 61st percentile. The vol rise is in part due to the stock drop… So the question is, do you think the stock drop is due in part to the potential (or impending) bid? Quite convoluted…

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



We can see how the vol is elevated from the back to the front monotonically for the front three expiries. Note that the earnings cycle for HTZ is usually Feb, late Apr / early May, Aug, Nov, so the most depressed vol (Sep) is actually the only expiry in that image that has an earnings. In English, there is more risk reflected in the front months than Sep even though Sep has the known volatility event.

--- SUMMARY ---
Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Looking across the top we can see that the monthly vols are priced to 76.06%, 69.46% and 64.18%, respectively. We can also see (in the green numbers) that Jul 14 calls and Jul 10 puts are trading. From what I see there was a risk reversal trading @ ~0.05 selling calls and buying puts. The rest of the volume in the calls look like purchases. In all, options have traded more than 2x the daily average volume in the first hour and a half while the stock is on pace for a “normal” volume day. In English, it looks like there is substantial order flow today getting long deltas in July… for whatever that’s worth.

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--- DISCLAIMERS ---
This is trade analysis, not a recommendation.

Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html

--- OVERVIEW ---
URI is trading $29.63, down 4.8% with IV30™ up 5.5%. The LIVEVOL® Pro Summary is below.



United Rentals, Inc. (United Rentals) is principally a holding company. The Company primarily conducts its operations through its wholly owned subsidiary, United Rentals (North America), Inc., and its subsidiaries. The Company is an equipment rental company. It operates in two segments: general rentals and trench safety, power and HVAC.

This is a vol note on a dipping stock. As the implied has risen, an interesting vol diff has opened up month-to-month as well.

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



There's actually a lot going on here. Starting with the stock portion, we can see the gap up off of earnings on 4-18-2012 (earnings were reported 4-17-2012 AMC). The stock popped from $40.91 to $45.75 (11.8%) in one day close-to-close. But, after a rise over the next few trading days, the stock has plummeted. On 4-27-2012 the stock reached as high as $47.98 (an annual high). As of this writing, the stock is down to $29.63, or 38% lower than the high reached a little over a month ago. Incredibly, the 52 wk range in URI is [$12.81, $47.98], so the stock has seen much lower lows.

I've included a news snippet that highlighted the drop in mid March, below. The rest of the drop seems to be market related -- that is, I can't find any really interesting firm specific news.

---
Bulls keep the faith in United Rentals, via Yahoo! Finance.
By David Russell (david.russell@optionmonster.com) | optionMONSTER – Fri, May 18, 2012 3:22 AM EDT


The equipment-rental company's stock tripled between early October and late April amid a steady flow of bullish earnings reports. But it's been getting dumped in the last month as weakness in the broader market causes investors to liquidate winning positions.

Yesterday URI fell 11 percent to $33.89. It has lost more than one-quarter of its value from its all-time high of $47.98 on April 27.
---

As the stock has collapsed, the vol has popped quite significantly. On 5-2-2012, IV30™ closed at 35.90%. As of this writing, IV30™ is now 84.25%. That's a 135% rise in a month with earnings long gone. The 52 wk range in IV30™ is [35.42%, 101.52%].

The vol rise has turned into a vol difference between the front month and the back. Let's turn to the Skew Tab to examine the calendar vol diff.



We can see two distinct phenomena in the skew chart:

1. The front vol is elevated to the back and in fact that relationship is monotonic across the front three expiries.

2. The front OTM calls do show a slight upward bend in skew -- that is, the OTM calls show "backward skew" reflecting greater upside risk (potential) in the near-term than in the later months. You can read about skew, what it is and why it exists here: Understanding Option Skew -- What it is and Why it Exists

Keep in mind that the last two earnings cycles for URI in Summer have been 7-20-2010 and 7-19-2011. The last trading day for the Jul option cycle is 7-20-2012, meaning that there could be an earnings cycle embedded in the Jul options that is not in Jun while the vol is depressed in Jul to Jun. Tricky...

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



We can see (across the top) that Jun vol is priced to 100.71%, while Jul and Sep are priced to 84.25% and 74.03%, respectively. In English, we're looking at more than a 16% vol diff between the front and the second months while there is a distinct possibility that the depressed Jul options contain a vol event (earnings). I also note that the Jun 22 puts are priced to nearly 116% vol and are worth ~$0.20 (using mid-market).

This is trade analysis, not a recommendation.

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--- DISCLAIMER ---
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IRM is trading $27.35, down 0.6% with IV30™ down 3.3%. The LIVEVOL® Pro Summary is below.



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Iron Mountain Incorporated (Iron Mountain) provides information management services. The Company offers records management services, data protection and recovery services and information destruction services.

This is a fascinating story surrounding a tech company's decision on whether or not it will re-constitute itself as a REIT. A quote from Briefing (details included below in the article) reads that the conversion is: "a significant binary catalyst on the immediate horizon." Let's start with a bit of news, then onto some analysis with more news interwoven.

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In early March, the activist hedge fund Elliott Management launched a proxy fight to elect four members to Iron Mountain’s board and urged the company to consider converting into a REIT. Davis Selected Advisers, Iron Mountain’s top shareholder with a 21.1% stake, filed a 13D with the SEC last Friday confirming that it intends to back Elliott’s nominees.

Iron Mountain, a Boston-based document and data storage and services company, has responded to Elliott by implementing a poison pill and urging shareholders to reject Elliott’s proposals. The company said it studied the REIT proposal with advisors for several months and decided it is not in the best interest of shareholders.

Source: FT via yahoo! Finance; Iron Mountain REIT debate heats up - analysis, written by Jay Antenen.
---

That's a good start. Let's turn to the Charts Tab (six months), below, to see an awesome vol move. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



On the stock side, I've highlighted the recent drop in stock price. On the 5-7-2012 the stock closed at $31.78. Less than a month later the stock is down ~14% as of this writing. That doesn't seem like a huge drop, but consider that the 52 wk range in IRM is just [$27.02, $34.94], so the stock is on the brink of a new low. On the vol side, we can see a large climb in the short-term implied. Since the vol drop off of earnings on 4-26-2012, IV30™ is up from 33.7% to 70.1%, or a 108% increase. The 52 wk range in IV30™ is [19.38%, 72.48%], so as the stock has hit recent annual lows, the vol has hit annual highs.

So why the vol rise? Check this out (from the same FT article):

---
Elliott claimed that Iron Mountain would trade around USD 50 a share by converting to a REIT. If Iron Mountain converts and adopts Elliott’s suggestions for business improvements, the fund projects the company could be worth around USD 77 a share and offer a 5% dividend yield, according to an SEC filing.

Source: FT via yahoo! Finance; Iron Mountain REIT debate heats up - analysis, written by Jay Antenen.
---

Ummm, yeah, that's more than $27.35. The next question is, how soon will a decision be made? Let's turn to the Skew Tab to see what the option market reflects.



Note how dramatic the vol diff is between the front three months. While the IV30™ (a weighted average) is ~70%, Jun vol is priced over 100%, while Jul is priced to ~65%. Looking further out, Oct is priced to just ~45%. In English, the option market reflects a risky (volatility creating) event (decision) within Jun expiry. So, ya know, really really soon 'n stuff. Here's a quick snippet from Briefing:

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Iron Mountain: The 06/09/12 deadline IRM set to conclude if it will convert to a REIT is little more than a week away - Oppenheimer (29.43 )

Oppenheimer notes the 06/09/12 deadline IRM set to conclude if it will convert to a REIT is little more than a week away. Anticipated as early as 1Q12 results, the decision appears to be coming down to the wire. Perceived "late cycle" IRM's organic rev has grown in the low-single digits the past three years, and isn't anticipated to rebound near term. As a result, sentiment surrounding fundamentals has been subdued. However, the pending REIT catalyst represents a significant binary catalyst on the immediate horizon. REIT conversion, perceived as a lower probability, would likely ignite substantial appreciation. No conversion, carrying a higher probability, would likely temper share value, though to a lesser magnitude in their view.

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Nice... Finally, let's turn to the Options Tab for completeness and position analysis.



I've highlighted the OTM calls in Jul simply to draw attention to the open interest showing over 14k and 34k in the 30 and 32.5 calls. Is that a lot? Well, I've included the Options Tab from 1-3-2012 and 4-3-2012, respectively, below.





We can see the combined OI in all of the OTM calls for both dates is less than the current 14k OI in Jul 30 calls and way less than the current 34k OI in the Jul 32.5 calls.

So, in English, the option market reflects the likelihood of a risky binary event in the next two weeks and accumulated option positions are very large in OTM calls. We'll see...

This is trade analysis, not a recommendation.

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