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Perfect World: Stock And Vol Explode; Company In A Paradigm Shift?

By Stock MarketsJun 18, 2013 07:18AM GMT Add a Comment
 
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Perfect World Co., Ltd. (PWRD) is an online game developer and operator in People’s Republic of China. The Company primarily develops online games based on its game engines and game development platforms.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The one-year PWRD 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).
Chart 1
Chart 1

On the stock side we can see an abrupt rise in price from 4-15-2013 to now. The stock has risen from below $10 to now over $16.60 and at one point as high as $17.25. In English, the stock is up ~65% in two months.

But there is also a vol story. I have included a myopic three-month IV30™ chart below, in isolation.
Chart 2
Chart 2

We can see that the implied was as low as 31.94% and is now just about 55% for nearly a triple in three-months. That low level was not off of an earnings release – so it’s no a contrived data point. Together with the stock chart we see a stock exploding both in price and vol simultaneously. Very interesting.

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

Across the top we can see that Jun vol is priced to 52.64% ad Jul vol is priced to 54.74%. I don’t believe either of those two expires will have an earnings event so, in English, the option market reflects this mid 50’s IV30™ through Jul expiry. There is a pop in Sep vol (59.47%) due to an earnings release.

This is an interesting story – is PWRD now just a totally different company with respect to valuation (stock price) and risk (implied vol)? Or is this some sort of weird blip?

Disclosure: This is trade analysis, not a recommendation.

Images provided by Livevol®


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