Cameron Int'l (CAM) - Depressed Vol Into Earnings Mover
Ophir Gottlieb | Jan 04, 2012 03:11AM ET
Cameron International Corporation (Cameron) provides flow equipment products, systems and services to global oil, gas and process industries. The Company operates in three segments: Drilling & Production Systems (DPS), Process & Compression Systems (PCS) and Valves & Measurement (V&M).
I found this stock using a real-time custom scan. This one hunts for low vols.
Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32
The goal with this scan is to identify short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.
The CAM 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).
I've highlighted a few things. In the stock portion I've highlighted the last two earnings cycles. The Summer of 2011 showed a one day move of ~$4.50. The Fall of 2011 showed a small one-day change, but five calendar days after the event, the stock was down more than $5. In English, the last two earnings cycles have seen a ~10% move in stock following the news. Why does that matter?
CAM shows depressed vol in both Jan and Feb and the next earnings release is confirmed for 2-2-2012. Tricky. As of right now the vol comps are included below.
We can see:
IV30™: 42.67%
HV20: 54.41%
HV180: 50.23%
Feb: 43.56%
So, Feb (with earnings) is depressed as well to the two historical realized measures. Let's turn to the Skew Tab.
The skew across all three front months is "normal." More notably -- the Jan and Feb vol diff is pretty small (and earnings are outside of the Jan expiry).
Finally, let's look to the Options Tab (below).
Get The News You Want
Jan is priced to 40.81% and Feb to 43.56%. The Feb ATM straddle is priced at $~6.15 fair value (mid-market). Keeping in mind the ~$5 move surrounding the immediate time-period after the last two earnings cycles, that's... interesting...
This is trade analysis, not a recommendation.
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