Stock Price Breaches Annual Low, Makes New Annual High in Volatility…

ONEOK, Inc., (OKE) is a diversified energy company. The Company’s segments include ONEOK Partners, Natural Gas Distribution and Energy Services. As of December 31, 2012, the Company was the sole general partner and owner of 43.4 % of ONEOK Partners, L.P. ONEOK Partners is engaged in the gathering, processing, storage and transportation of natural gas in the United States.

This is another elevated vol note on an energy company as the stock is plummeting. I found this stock using a real-time custom scan. This one hunts for elevated vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The one-year OKE 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).

On the stock side we can see the nice climb from one-year ago to the end of Apr. Since then, however, the stock performance has been poor, dropping from $52.09 (4-24-2013) to now $40.91 in two and a half months. Note that large gap down off of earnings on 5-1-2013.

Let’s turn to the one-year IV30™ chart in isolation, below.

As the stock has hit a new annual low just months after reaching an annual high, the implied has been ripping up. On 5-23-2013 the IV30™ was 20.08%. Now, just six weeks later the implied is at 37.20% (it has risen as I am writing the blog) or an 85% rise. The level reached today on this spike up is an annual high. So, as discussed prior, we are looking at a stock that has both breached an annual low in stock price today and an annual high in IV30™.

The Skew Tab also reveals some interesting volatility phenomena.

Two things pop out in this picture:

(1) Both of the front months show an upside skew. In English, the option market reflects greater upside risk than downside risk in the next two option expiries. This would be considered “backwards” skew.

(2) Note the volatility difference between Jul and Aug to the upside. A substantial vol diff exists between the two months to the OTM calls while the ATM options are in fact priced higher in Aug than Jul. Interesting…

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

Across the top we can see the monthly vols are priced to 34.49% for July and 37.84% for August. So, August ATM vols are higher than July's, but July OTM calls are priced higher than August (with respect to volatility). The option market reflects a rather abrupt risk in the near-term to the upside for OKE – even as the stock hits a new annual low.

Disclosure: This is trade analysis, not a recommendation.

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