Cameron Int'l (CAM) - Depressed Vol Into Earnings Mover

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).



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.