Acme Packet: The Effect of a Pre-Announcement on Earnings Volume
Ophir Gottlieb | Jan 26, 2012 03:00AM ET
Acme Packet, Inc. (APKT) is a provider in session border control solutions, which enable the delivery interactive communications, such as voice, video and multimedia sessions, and data services across Internet protocol (IP), network borders.
Whoa, whoa, whoa. I thought they made rockets for Wile E. Coyote?...
This is a vol note -- specifically to examine how the options market reacts when an earnings date approaches following a downward revision from the company just a few weeks prior. 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).
We can see the stock drop in early Jan. Here's a news snippet on that day:
Acme Packet, Inc. : Acme Packet reduced guidance, with 2011 revenue of $308 million - $310 million against consensus of $318 million. EPS are brought down to $1.03-$1.05 against consensus of $1.14. Shares were down -19.21%.
Source: WALL ST. CHEAT SHEET via Yahoo! finance, Acme Packet and National Instruments Among Biggest Stock Percentage Losers
The 52 wk range in APKT stock price is [$25.20, $84.50]. That stock drop is reflected in the HV20™ -- specifically a spike. Before that move, HV20™ was 54.44% and it's now 88.52%. With that move in HV20™, the implied is now trading below both of the historical realized measures. Specifically:
IV30™: 64.04%
HV20™: 88.52%
HV180™: 78.00%
The 52 wk range in IV30™ is [45.56%, 94.92%]. So, the current level is in the 36th percentile. All of this is in the context of the actual earnings report due out on 2-2-2012. But, it does make sense that vol could be less elevated than normal once a piece of the earnings puzzle has been revealed. Tricky...
It's a fair question to ask how much the pre-announcement has reduced risk (vol), if at all. I've included the IV30™ on the day of earnings for the last four earnings cycles, below:
2011-10-20: 77.41%
2011-07-21: 70.14%
2011-04-26: 66.26%
2011-02-01: 76.9%
Mean: 72.68%
Median: 73.52%
With the current IV30™ at 64.06%. But, keep in mind that IV30™ should still rise as that single event approaches (i.e it should be at its highest level on 2-1-2012). The vol almost looks unaffected in that context.
Let's turn to the Skew Tab.
Get The News You Want
We can see the front month (with earnings) is elevated to the back months. So, while the overall vol level is near the lower third (for the year) and is depressed to the HV180™ and the "artificially" elevated HV20™, the front is still elevated to the back. In English, the back months are even more depressed than the front.
Finally, let's turn to the Options Tab.
Looking to the top we can see the monthly vols are 67.60%, 58.76% and 59.84%, respectively.
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