SPECIAL REPORTS | Updated: 21-Jun-13
Strategies for profiting from various market-driven themes or events using stocks and/or options.

Options Volatility Analysis Ahead of Earnings -- BBRY, SWHC, FINL seeing high relative volatility
Since the options market acts as a good gauge of expected future stock movement, this Special Report highlights select stocks of interest that are expected to show increased volatility around their earnings releases. While it is not a big surprise that stocks are expected to experience greater volatility around their earnings releases, this report is intended to give an idea of how the expected volatility in these names rank in comparison to their historical volatility (actual observed movement in the past), and point out some stocks that could see increased volatility.

The table below uses options market implied volatility to determine the current expectations for a potential one-day move in the stock (based on a one standard deviation move). We'd note that a stock can be expected to remain within a one standard deviation range about 2/3 (67%) of the time, and to remain within a two standard deviation range roughly 95% of the time. The historical volatility helps give an idea of how the stock has acted over the past 30 days and we provide a column showing the 1-day (1 std dev) move based on historical volatility. The percentage difference in implied volatility vs. historical volatility gives an idea of current volatility expectations compared to past (actual) stock movement. The stocks in the table below are sorted by biggest expected percentage move to smallest expected move, then by the percentage difference between the implied and historical volatility.

Looking at next week's earnings calendar, names that jump out that have high implied volatility vs historical volatility include BBRY, CAMP, AVAV, SWHC and FINL. This implies elevated expectations for near-term stock movement in these names. Additionally, the stocks below have seen notable recent options activity ahead of earnings: 

  • APOL (reports June 25 after the close) saw bearish put buying -- we noted on June 20 that the APOL Jul 18 puts traded 10.4K contracts vs 490 open interest. 
  • BBRY (June 28 before the open)  appeared on our relative heightened volatility scan for the past three weeks. 
  • AH (earnings expected late June) appeared on our relative heightened volatility scan five time since the beginning of May.  
The table below summarizes options market expectations for volatility in select stocks reporting earnings next week.

Stock Price Implied volatility **Historical volatility % Difference between implied and historical vol 1-day move based on historical vol Current implied 1-day move Implied 1-day % Change Earnings date Time
BKS $18.63 69% 89% -23% $1.05 $0.80 7% 25-Jun Before Open
APOL $19.38 63% 43% 44% $0.53 $0.76 5% 25-Jun After Close
KBH $19.38 61% 45% 37% $0.54 $0.74 5% 27-Jun Before Open
LEN $34.25 51% 40% 28% $0.86 $1.11 4% 25-Jun Before Open
WGO $20.23 49% 38% 28% $0.48 $0.62 4% 27-Jun Before Open
BBRY $13.99 77% 37% 110% $0.32 $0.68 3% 28-Jun Before Open
CAMP $13.49 48% 24% 97% $0.21 $0.41 3% 27-Jun After Close
AVAV $19.33 40% 21% 89% $0.26 $0.49 3% 25-Jun After Close
SWHC $9.79 43% 24% 81% $0.15 $0.26 3% 25-Jun After Close
BBBY $69.98 34% 21% 62% $0.91 $1.48 3% 26-Jun After Close
LNN $76.02 37% 23% 62% $1.09 $1.77 3% 26-Jun Before Open
WOR $32.93 40% 25% 59% $0.52 $0.83 3% 27-Jun Before Open
PRGS $21.35 35% 23% 50% $0.31 $0.47 3% 26-Jun After Close
SONC $14.37 37% 25% 47% $0.23 $0.34 3% 24-Jun After Close
SCHN $24.66 41% 29% 40% $0.45 $0.63 3% 27-Jun Before Open
CMC $14.16 34% 25% 36% $0.22 $0.30 3% 27-Jun Before Open
FINL $21.17 40% 22% 88% $0.29 $0.54 2% 28-Jun Before Open
NKE $60.73 30% 18% 72% $0.68 $1.16 2% 27-Jun After Close
SNX $42.45 30% 21% 44% $0.55 $0.79 2% 25-Jun After Close
ACN $79.47 25% 18% 38% $0.92 $1.27 2% 27-Jun After Close
AZZ $41.82 34% 25% 35% $0.66 $0.90 2% 28-Jun Before Open
WAG $48.95 30% 23% 27% $0.72 $0.92 2% 25-Jun Before Open
PAYX $36.98 21% 17% 25% $0.39 $0.48 2% 26-Jun After Close
MKC $70.84 22% 18% 17% $0.82 $0.97 2% 27-Jun Before Open
CAG $33.07 22% 19% 16% $0.39 $0.46 2% 27-Jun Before Open
CCL $33.48 25% 22% 15% $0.46 $0.53 2% 25-Jun Before Open
GIS $48.57 19% 16% 13% $0.50 $0.57 2% 26-Jun Before Open
MON $102.80 28% 28% 1% $1.80 $1.82 2% 26-Jun Before Open
Implied 1-day move is based on a one-standard deviation move. This means the stock can be expected to remain within one standard deviation, in either direction, about 2/3 of the time. **Historical volatility is based on 30 day period stock price movement.


Data Source: LiveVolPro (www.livevolpro.com)

Today June 21 is options expiration -- the last day to trade June equity options.
We'd note these expectations are subject to change in the days leading up to the actual earnings release. Additionally, there may be factors other than earnings driving volatility levels.

-Blair Robicheaux, Chris Borgmeyer, CFA

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