Staples: Elevated Vol May Breach Annual High Into November Earnings

Staples, Inc. (SPLS) is an office products company. Staples operates in three business segments: North American Delivery, North American Retail and International Operations. As of January 28, 2012, the Company served businesses of all sizes and consumers in North America, Europe, Australia, South America and Asia.

This is a vol note, specifically an elevated vol note in a firm that I found using a custom scan.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ LTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

The SPLS Charts Tab (six months) 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 rather "gappy" stock ride down over the last half year. The six month return for SPLS has been -26.4% with two notable gaps down off of earnings (the "E" icon represents an earnings announcement). The 52 wk price range for SPLS is [$10.47, $16.60].

On the vol side we can see the story -- elevated implied to the two historical realized measures. IV30™ was 32.29% on 9-12-2012 and since that time (as of this writing) is up 38%. At that same time the stock is essentially unched (it closed at $11.54 on that day). The vol comps as of right now are:

IV30™: 44.55%
HV20™: 30.73%
HV180™: 34.61%

The 52 wk range in IV30™ is [21.74%, 53.43%], putting the current level in the 72nd percentile. The next earnings release should be in the Nov cycle.

Let's turn to the Skew Tab.


We can see a rather rickety skew -- Nov shows an upside bias while Dec looks like a random number generator. That upside skew in Nov is not trivial in that it's a dime bid in the Nov 14 calls but the NBB shows a size of over 5,000 contracts. In English, that upside bend isn't a random one lot dime bid. Given the ugliness of the last two earnings cycles, I'm a little surprised to see that upside skew.

Finally, let's turn to the Options Tab.

Across the top we can see the monthly vols are priced to 43.71%, 44.89, 43.06% for Oct, Nov and Dec, respectively. That Nov vol will likely rise as we approach earnings and it wouldn't surprise me if the vol reaches an annual high (or nears an annual high) given the last two earnings report reactions. Well over 50% vol in mid Nov (if earnings are in fact in Nov) is realistic if not expected, IMHO.

Disclaimer: This is trade analysis, not a recommendation.