MBIA Inc.: Earnings Vol Spikes, New Price Target For 100% Rise

MBIA Inc. (MBIA) together with its consolidated subsidiaries, operates the financial guarantee insurance businesses in the industry and is a provider of asset management advisory services.

This is a vol note – rising vol to be specific. News yesterday pushed the vol higher (above the historical measures). Let’s first check out the research note from yesterday:

MBIA (MBI: NYSE) By MKM Partners ($9.51, March 27, 2012)

We are initiating coverage of MBIA with a Buy rating and a 12-month price target of $18.

Our Buy rating is predicated on our belief that MBIA's (ticker: MBI) transformation litigation will either be upheld by the courts or see the remaining plaintiffs withdraw from the two primary cases challenging this transaction. If/when this occurs (and a separate case, Aurelius, is settled/dismissed), National Public Finance Guarantee (National) will become a separate entity […]
Source: Barron’s via Yahoo! Finance -- MBIA May See Catalyst Soon

Just to be clear, the $18 price target is essentially a 100% higher target. Let’s turn to 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).

On the stock side we can see a rather large move up between 11-26-2011 ($7.26) and 1-11-2012 ($13.32) of over 83%. The stock has come down off of those highs, and recently has found a sort of quit period with HV10™ at 35.77%.

On the vol side we can see a few interesting phenomena:
1. The implied has traded above the HV20™ and HV180™ for nearly all of the last six months other than a few days in the recent past.

2. The implied is now trading above both historical vol measures with the IV30™ pop today. The vol comps as of this writing are:

IV30™: 68.96%
HV20™: 37.54%
HV180™: 59.63%

3. Finally, while the implied has returned to its “standard” elevate level relative to the historical measures, it’s still depressed relative to its own history. The 52 wk range in IV30™ is [52.92%, 133.28%], putting the current level in the 19h percentile.

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

We can see that May is elevated to the other expiries and that’s due to the earnings release due out in the May cycle. Apr does show a parabolic shape reflecting tail risk in both directions in the near-term.

Finally, let’s turn to the Options Tab, for completeness.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. The vols across the top demonstrate 61.82%, 90.31% and 78.63% for Apr, May and Aug, respectively. This is a clear example where the earnings event has a huge impact on the reflected risk in the options. In English, the May vol is 50% higher than Apr.

This is trade analysis, not a recommendation.