optionvol-NBC-Bay-Area

The VIX spot is trading $16.88, up 9.3% with IV30™ up 7.9% (that's the vol of the vol). The LIVEVOL® Pro Summary is below.




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The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500® Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.

I'm examining the vol of the VIX today -- and by examining I am pointing out one stark empirical phenomenon, which is... The implied vol of the VIX seems too low.  Yeah, I said it... (I also said "appears" so no law suits allowed -- this isn't advice).

Like a 3-act movie, I will start with an introduction into the characters and our protagonist and end with the "turning point", build a little, get caught in no man's land by the middle of the second act ("the point of no return"), and close big with the final act, "all hope is lost," and then a nice and neat resolution.

For a teaser, I will end up explaining this chart:



But we're not there yet... So, let's start with a two-year chart of the VIX spot, below.


This is our protagonist.  We can see his object of desire is to appropriately reflect the risk over the next 30-days in the S&P 500 Index.  His (her?) path is a bumpy one -- there's a gap between his expectation and reality, and with each gap, he has to do more to reach his object of desire. This builds his character and is in fact the same thing as story.  Like any good screenplay, it has been a bumpy ride for the protagonist, reaching as high as ~48% and as low as 11.05%.

But the story gets more interesting as we look a bit more myopically.  Let the second act begin.  Below we are looking at a three-month chart of the VIX spot.


The choppiness is building.  In fact, it's within this three-month window that the VIX hit its multi-year low of 11.05%.  It has also been as high as 18.51% which means its upper range in the last quarter has been 67.5% higher than its low.  Remember, this measures the 30-day forward looking risk of the S&P500 -- this ain't a micro-cap bio-tech index.

An interesting headline I saw via Yahoo! Finance read something like "100-Point Dow Swings Are Back."  A quote from it is: "For the seventh time in the past ten sessions, the Dow Jones Industrial Average (^DJI) is moving at least 100 points, up or down, from the previous close."  The point was clear, the market may be moving away from slow and steady (and up all the time), to, not slow, not steady and not up all the time.

Finally, the last act.  This image is breathtaking... and not just b/c it has lots of pretty colors.


The legend is at the top, but to make it easier, just know this.

I have included the following historical realized vol measures:

HV60™: The historical realized volatility of the VIX spot over the last 60 trading days.
HV90™: The historical realized volatility of the VIX spot over the last 90 trading days.
HV120™: The historical realized volatility of the VIX spot over the last 120 trading days.
HV180™: The historical realized volatility of the VIX spot over the last 180 trading days.

Note, all of these measures are the darker colors and all are on top of the four measures at the bottom.


I have included the following implied vol measures:

IV60™: The implied forward looking volatility of the VIX spot for the next 60 calendar days.
IV90™: The implied forward looking volatility of the VIX spot for the next 90 calendar days.
IV120™: The implied forward looking volatility of the VIX spot for the next 120 calendar days.
IV180™: The implied forward looking volatility of the VIX spot for the next 180 calendar days.

Note, all of these measures are the brighter colors and all are below the four measures at the top.

So what?  For every measure of realized vol vs. it's counter part in implied vol, the VIX IV is measuring (reflecting) less forward risk than has been realized in the past.  Yeah, less risk is reflected in the VIX than has been realized in the past.

So, if you believe that the market is now in a period of larger moves more often, then you wouldn't believe that the forward risk of the VIX spot would be less than the past realized movement -- but that is exactly what the VIX options reflect.

My take?  If there is a 50/50 chance that  VIX vol rises, then the options are mispriced (they would be exactly equal to HV if that was the case -- sort of...).  Right now it looks like the option market reflects a higher chance that the VIX spot moves less than it has in the past.. and that, does not seem sound... Ya know, or it does?...


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SODA closed at $76.11 on Monday, up 5.0% with IV30™ popping 23.8%. The LIVEVOL® Pro Summary is below.



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SodaStream International Ltd., formerly Soda-Club Holdings Ltd., along with its subsidiaries, is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. This is truly a fascinating story where a stock is nearing all-time highs and vol is exploding with the stock rise.

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

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

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



On the stock side we can see a remarkable Y-O-Y return from $34.67 to now well more than 100% higher. We can also see more myopically how the stock has been headed up rather abruptly in the last few months. SODA just broke an annual high in stock price today and is dangerously close to breaching an all-time high (~$80).

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



We can see the hypnotic ebb and flow of vol around earnings, but try to look past that and check out the vol move of late. We can see a rather abrupt directional change where the implied has risen from ~38% to now over 66% -- and that’s after earnings. So this is a great example of a stock that has rising vol as the stock price also rises.

Let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 78.72% for Jun and 60.79% for Jul. That’s a sizable calendar diff. Note that the Oct, Jan’14 and Jan’15 expiries continue a monotonic vol drop by expiration. In English, the risk for SODA as reflected by the options market is hyper focused on the near-term.

Finally, let’s turn to the Skew Tab to get a better look at the vol diff between the front two months.



The shapes are the same – that is, parabolic, which reflects both upside and downside tail risk, but more obvious is the sizable premium in the Jun options (in terms of vol) relative to Jul. This is truly a fascinating story where a stock is nearing all-time highs and vol is exploding with the stock rise.


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ELN is trading $13.56, up 0.9% with IV30™ up 29.3%. The LIVEVOL® Pro Summary is below.



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

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

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



On the stock side we can see a very impressive price rise from $10.12 to now over $13.50; so over 30% in six-months.  We can also see that gap up on 6-7-2013 (aka last Friday).  This firm (ELN) is embroiled in a sort of cat and mouse game with Royalty Pharma which has made bids (and continues to make bids) for the firm, continually shunned by ELN asking for more.  Here's a quick news snippet from Friday:

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Shareholders in Elan have seen a bump in the value of their stock following the latest buyout offer from Royalty Pharma. Today, the latter upped its bid for the Irish company to $13 per share, a half-dollar improvement over its most recent bid. Additionally, Royalty Pharma is willing to pay a $2.50-per-share "contingent value right" if Elan's star multiple sclerosis drug Tysabri reaches certain sales goals.

The new offer is still not good enough for Elan's board of directors. In a tersely worded response to it, the company quoted the board as saying simply that its shareholders "are strongly advised to take no action in relation to the Royalty Pharma offer."

Source: The Motley Fool via Yahoo! Finance - Royalty Pharma Increases Bid for Elan, written by Eric Volkman.
---

Well, there you go. In the meantime, the implied vol (risk) is elevating quite substantially for ELN shares. Let's turn to the six-month IV30™ chart, below.



We can see the abrupt rise since 5-22-2013 when the implied closed at 17%.  Today we can see it trading at 38.42% so more than a doubling in the short-term implied in just three weeks.   That is something...

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



Across the top we can see the monthly vols are priced to 48.585 in Jun and 33.545 in Jul.  Neither of those expiries should have an earnings release.  I have included the Skew Tab, below, to better illustrate the vol diff that has opened up between the front two expiries.



We can see that rather dramatic vol diff in the time spread. The option market reflects much more risk in the near-term (the next two weeks) than it does in Jul expiry. In English, the option market says, "news is coming."

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TIBX is trading $21.19, up 2.4% with IV30™ up 0.9%. The LIVEVOL® Pro Summary is below.




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

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

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

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



On the stock side we can see a poor Y-O-Y return with the stock trading $26.67 one year ago and down substantially as of today from that level.  But this is a vol note, so let's turn to a one-year IV30™ chart in isolation, below.



The firm has earnings due out at the end of Jun expiry (Jun 20th), so elevated vol is expected and in fact it would be an anomaly if the vol wasn't rising.  But that's not the point, the point is, look how high the implied has gotten with still two weeks to go before earnings.  The blue "E" icons represent past earnings dates, and the IV30™ today has risen well higher than those levels.  As the earnings date approaches, the vol should continue to rise (unless there is a pre-release or guidance or whatever) and that could mean consistently new highs in implied vol over the next two weeks.

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



Across the top we can see the monthly vols are priced to 70.80% for Jun and 50.89% for Jul.  That vol diff is due to the earnings release at the end of Jun expiry. But, at some point, the vol difference may grow so large (relative to the past) that it becomes... something... Ya kow, or not...

This is trade analysis, not a recommendation.

HRB is trading $28.45, down 1.2% with IV30™ up 5.0%. The LIVEVOL® Pro Summary is below.




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H&R Block, Inc. (H&R Block) has subsidiaries that provide tax preparation and banking services. The Company's Tax Services segment provides assisted income tax return preparation, digital tax solutions and other services and products related to income tax return preparation to the general public primarily in the United States, and also in Canada and Australia.

This is a vol note, specifically an elevated vol note. And yes, I know that HRB has earnings due out in a week from today -- but this is still worth the analysis -- I'll show you why.

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



On the stock side we can see a really nice price appreciation Y-O-Y, with the stock rising from $15.53 (so nearly a double in a year) and still paying a nice little divi. We can also see that on the last earnings release (the blue "E" icon) that the stock popped on the news. Good for HRB shareholders and HRB management.

But this is a vol note, and an interesting one. Let's take a look at the one-year IV30™ chart, below.



We can see where the vol peaked for the prior four earnings cycles. Now look at the vol trend of late. With still a week to go before the release, the implied is absolutely exploding. On 5-15-2013 (so, three weeks ago), IV30™ was priced at 34.99%. Today we see a 48.28% level or a 38% rise. The 52 wk range in IV30™ is [16.60%, 46.00%], so we're obviously well into annual high territory. As earnings approaches, the implied should continue to rise and I wouldn't be surprised to see a level well over 50% ahead of the earnings release.

In English, the option market reflects more risk in HRB now than it has in a year and that risk will quite possibly continue to rise.

Finally, let's turn to the Options Tab.



We can see Jun vol is priced to 53.36% and Jul is priced to 42.95%.  That vol diff is due to earnings -- my focus is (and will be) the implied up to earnings.

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ET is trading $33.71, up 52.5% with IV30™ down 63.9%. The LIVEVOL® Pro Summary is below.




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ExactTarget, Inc. is a global provider of cross-channel, interactive marketing software-as-a-service (SaaS) solutions. The Company’s solutions provide marketers with a suite of integrated applications. The Company’s suite of cross-channel, interactive marketing applications include e-mail, mobile, social media and sites, is built on its flexible multi-tenant SaaS platform.

So, first the news -- it's a takeover:

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Salesforce.com (CRM) has signed a definitive agreement to acquire ExactTarget (ET) in a cash deal worth approximately $2.5 billion. Under the terms of the deal, each ET shareholder will receive $33.75 per share in cash.

The deal is expected to close by the end of July 2013.

Source: PR Newswire, Reuters
---

Unfortunately, this is one of those notes where I see some unusual option activity ahead of the news and it's suspicious... Let me build the story.

First, let's look at the average option volume for ET over the last three-months:



So, we can see the firm averages 271 calls traded a day, and that number includes the anomaly I am about to demonstrate.

Let's look to a chart of option volume over the last two-years.  The scale is linear -- the spike in May 10. 2013.



We can see pretty clearly that May 10th was a wildly high option volume day for ET -- more so than any day in the last two-years by a large amount.  And, what was the volume? How about 4,411 calls and 28 puts.  Specifically, the May 20 calls traded 2318 times and the Jun 20 calls traded 1,643 times on OI of just 43.  The purchase price for those Jun 20 calls was ~$1.30, though they ranged from $0.90 to $1.60.  The may 20 calls were purchased for ~$0.50.

Now those May options expired before the takeover news, although they did increase in value to $2.50 -- so about a 400% gain, but, ya know, coulda just been some spec buying (or whatever).

The story is those Jun 20 calls, and here's why.  I have included the ET Options Tab from today, below.



Those $1.30 calls are now worth ~$14.00 making the gain on thoe options well over $1,000,000 and then look at the OI of every other option (calls and puts) for every other expiration and every other strike in ET.  What do ya know, the Jun 20 calls are the largest of any other.

This feels awfully suspicious, though I'm not screaming bloody murder -- there are several circumstances that make this trade just "a trade," with no impropriety.  Having said that, it compelled me to write about it, which means it compelled me to tell you about it.

Good trade... right?

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IRM is trading $35.07, down 2.1% with IV30™ up 25.1%. The LIVEVOL® Pro Summary is below.




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Iron Mountain Incorporated (Iron Mountain) is engaged in storing records, primarily paper documents and data backup media, and provide information management services. The Company offers records management services, data protection and recovery services and information destruction services.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day.  But this is also an order flow note -- check out the volume in the Jun 37.5 calls -- those are opening purchase orders .

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

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

The six-month IRM 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 how IRM hit a recent high of $39.71 in early May, which is in fact a multi-year high. But then… the stock started falling. In the last two weeks (ish) the stock is down 12% and the vol has decided it’s time to explode.

I have included a six-month IV30™ chart in isolation, below for a more myopic view of the vol.



Check out that explosion in the implied. On 5-22-2013 the IV30™ was 22.77%. Today we’re looking at an IV30™ of over 37%, or a 60%+ rise in just about ten days. That’s certainly an abrupt and noteworthy move especially considering that earnings were released on 5-1-2013, so this vol rise and stock drop are not associated with that news event.

IRM does have a history of huge vol and stock moves – they’re just hidden in a short-term six-month chart. The 52 wk low in stock price is $23.40 and the 52 wk range in IV30™ is [15.84%, 72.46%]. Look at that high number of 70%+ implied. In English, IRM has seen substantially higher vol (risk) so this pattern of late may have legs.


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



Across the top we can see the monthly vols are priced to 40.11% in Jun and 34.75% in Jul. Again, if this stock drop and vol rise continues, it’s not impossible to see a doubling of vol in a relatively short amount of time based on the history of this stock over the last year.

Also, as i mentioned up font, check out the volume in the Jun 37.5 calls (the green number to the left of that strike).  IRM averages 2,558 calls traded per day in total and has seen over 8,000 Jun 37.5 calls alone traded already.

 This one goes on the watchlist…

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