Paul Cretien breaks down the options price curve of four metal futures. ...
Western Union Calling?
11/05/2012 7:00 am EST
Following the fate of other stocks that disappointed after third-quarter earning report, Andrew Giovinazzi of OptionPit.com offers an options play on this stodgy name.
The market got a bit of a relief rally Thursday. The hurricane was manageable and the employment picture was a bit brighter according to ADP so we had a very pleasant rally. There was the first real smack down in volatility since the day before GOOG reported underwhelming numbers a couple of weeks ago. Anytime the VIX drops near 2 points it is a big readjustment in the volatility perception. Even with the election looming it won’t make much difference for the market if Thursday’s IV markdown was any indication.
When Mark and I were running through a session for our live Gold Trading Labs, we were looking at recent market activity (as in the big IV crush) and noted how many stocks are starting to trade at their one-year volatility lows. One stock that is not is Western Union(WU). This landscape view from OptionVision shows One-Week Total Return (tallness) and the difference between IV30 and HV60 (color). The idea of this landscape is to create a live interactive scan of the market (which in this case was technology companies). When we were showing our Gold Lab, I clicked around a bit at the big movers to find out which one was WU.
It was at this point I had to take a look as WU was dominating the landscape for cheaper IV30. As with most things you have to dig in a bit after noticing a hiccup in data. WU is just down from $18 on poor guidance and was down another .40 or so today to under $13. The reason the IV is so cheap relative to (red in this landscape) HV is that the name had an out of category drop after earnings. Even on reduced guidance the name is trading below a 10 p/e (raising the dividend too) and shorter term IV is very elevated for a sleepy stock like this. It makes a nice short put spread candidate.
I like selling the Dec 11/13 put spread. There is some decent juice in it (for WU) and I think this sell-off happened when the market was a bit disquieted yesterday. Feels real cheap for a global property and one thing I like is a bargain.
Andrew Giovinazzi: Chief Options Strategist, OptionPit.com
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