Morgan Stanley: Vol Spikes Higher, Stock Drops, Is Vol Too Low?
Ophir Gottlieb | Nov 08, 2012 03:55AM ET
Morgan Stanley (MS) is a global financial services company that, through its subsidiaries and affiliates, provides its products and services to a range of clients and customers, including corporations, governments, financial institutions and individuals.
This is a vol note on a stock that is reacting abruptly to the election (or something), and has a vol pattern developing that caught my eye, along with a vol diff between expiries.
Let's start with the Charts Tab (six 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 that the actual 6-month holding period return is pretty modest with the stock rising from $16.15 to now $16.78. More interesting is the initial drop and then rather abrupt recovery in MS since late summer. And then today happened... the 52 wk range in MS stock price is [$12.18, $20.99].
But this is a vol note. We can see the turn up in IV30™ today, but it's actually the longer-term annual trend that caught my eye. I've included the annual IV30™ chart below.
We can see two enormous spikes in IV30™ over the last year -- neither of which surrounded an earnings release (note the blue "E" icon denotes earnings dates). What really caught my eye is the pop in vol over the last few days. Yes, I know, there was some sort of election or something that happened yesterday, and the market is down size today (so VIX is popping), but how's this for a stat: on 10-22-2012 the IV30™ hit the bottom one percentile (annual) for MS. Since then, it has rocketed above the earnings vol level. The 52 wk range in IV30™ is [33.40%, 82.07%], which puts the current level in just the 19th percentile annual.
So what? I see a stock whose implied is rising rapidly after hitting essentially an annual low, yet even with the rise is still in the bottom quintile (compared to its own history) of annual vol.
The Skew Tab, below, shows us even more.
I have included the Nov09 weekly options in there for a complete picture. The notable phenomena here are:
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1. There is a monotonic increase in vol from the back to the front.
2. The Nov monthly options (yellow curve) show a parabolic skew which reflects both upside risk (potential) and the normal downside risk.
Finally, let's turn to the Options Tab.
Across the top we can see the monthly vols are priced to 44.60% and 41.35% for Nov and Dec, respectively. Those Nov09 weeklies are priced to over 50% vol. It seems to me that there is some "settling in" that has to occur due to the election, but beyond that, there's some "settling in" that has to occur b/c we don't really have a good idea of which way the economy is going. It seems like the vol rise in MS makes sense, but the vol level... feels low, no?... Would you say the vol in MS right now should be in the bottom quintile (over the last year)? I dunno... feels weird(ish)... or not...
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