Athenahealth: Popping Stock Nearing Vol Annual Low

Athenahealth, Inc. (NASDAQ:ATHN) is a business services company, which provides ongoing billing, clinical-related, and other related services to its customers. The company provides these services with the use of athenaNet, an Internet-based practice management application.

This is a vol note (depressed vol) in a stock that has seen a recent run up on two different news items. I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $10
IV30™ GTE 30
IV30™ Percentile LTE 10
IV30™ - HV180™ LTE -7
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to the long-term stock movement (HV180™) was well as its own history. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and minimum level of vol so the examination is more interesting.

The ATHN Charts Tab is included below (six months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side, we can see the abrupt rise of late. The first bit of news came out on 7-18-2012 when the stock went from $79.16 to $88.38 (+11.6%). Here's a snippet:

What: Shares of medical billing software specialist Athenahealth climbed 13% on Wednesday after the company landed a big contract with Health Management Associates (NYSE:HMA) to provide cloud-based back-office services.

So what: While financial details weren't disclosed, the deal is easily Athenahealth's largest given Health Management's expansive network of roughly 1,500 physicians operating in more than 300 locations across the country. Naturally, the news also deals a significant blow to rival Quality Systems (NASDAQ:QSII) -- whose shares are down 10% today -- which will see its five-year-old partnership with Health Management finally come to an end.

Source: The Motley Fool via Yahoo! Finance; Why Athenahealth Shares Popped, written by Brian D. Pacampara.

On the heels of that news came an earnings release (7-19-2012 AMC). On 7-20-2012, the stock popped from $87.18 to $92.97 or 6.6%. Here's that news snippet:

What: Shares of Athenahealth popped by as much as 12% after the company reported a solid second quarter earnings release.

So what: Revenue grew by a third, to $103.5 million, turning into an adjusted profit of $0.24 per share once it reached the bottom line. The figures were mostly in line with analyst expectations, but obviously were enough to send investors cheering.

Source: The Motley Fool via Yahoo! Finance; Why Athenahealth Popped, written by Evan Niu.

All told, the stock price went from $79.16 to $92.97 in three days. The 52-week range in stock price is [$40.79, $97.25].

On the vol side, we can see how the implied dipped a bit off of the contract win news, and then substantially off of earnings (which is normal). What I find odd is not the vol drop, but the degree to which it dropped. The 52 wk range in IV30™ is [30.29%, 73.75%], putting the current level in the 9th percentile (annual). The options reflect a sort of certainty that the new price achieved with the news is in fact at or near equilibrium. In English, the options reflect the idea that the stock isn't gonna move a lot over the next 30 days (where a lot is relative to it's own annual past). That is an interesting result -- and not one that I would have expected.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

The skew is pretty normal, even pretty. That weird shape in the downside puts for December is there simply due to some oddly wide markets in those strikes. You can read more about skew here:
Understanding Option Skew -- What it is and Why it Exists .

Finally, let's look to the Options Tab (below).

We can see the monthly vols are priced to 33.81%, 37.64% and 42.68%, respectively. I do note (again), how the near-term options are priced to such low vol relative to the annual history and the back months. Hmm...

This is trade analysis, not a recommendation.