Friday, 20 November 2015

More Thoughts on Hibbett and Sentiment and Why I Am Not Crazy (well maybe I am some of the time)


These are some random thoughts on price and volatility (as opposed to valuation).

I was mulling over adding to my initial position in Hibbett yesterday, but I didn't for the simple reason that Q3 earnings were due in this morning.

Here's the chart going into this morning's release:















I constantly discuss ideas I have with a good friend of mine who has a similar evaluation framework to me. These are my comments to him yesterday evening (apologies to any readers if some of the language is esoteric):

"First off, 30x straddle expiring tomorrow is pricing in a 19% move.  This after DKS dropped 7%.  But, on the day DKS dropped 7%, HIBB dropped about 6%, so maybe the worst in priced in…down another 4% today and making new lows almost daily.  It’s down 25% since last earnings release (and obviously riskier now than it was in August according to options pricing theory)

Interesting how volatility is bid with 1 day to go. 

Possibilities tomorrow:

1.       Miss already lowered expectations + guide down, stock down, but likely not down +20%.  A -20% move would put it at $23, which is my 0% growth 12% Re model price.
2.       Meet lowered expectations + guide down, stock down, but probably not down anywhere near 20% and volatility crushed
3.       Meet lowered expectations, no change in guidance, rallies or flat and volatility crushed
4.       Meet lowered expectations, ups guidance, rallies and volatility crushed
5.       Beat lowered expectations, + guide down, stock down, but probably not down anywhere near 20% and volatility crushed
6.       Beat lowered expectations, no change in guidance, rallies and volatility crushed
7.       Beat lowered expectations, ups guidance, rallies and volatility crushed

In all possibilities except for maybe 1., volatility gets crushed

And then there are these idiots:
















My gut feel after reading this nonsense was that the monkeys buying $25 / $22.50 put spreads with one day to expiration (they expire today) at +80% volatility betting on a crash in the stock were most likely deluded, but, I guess anything can happen in market land.

In any case, they beat this morning (already lowered expectations), and so far the stock is up in the premarket in excess of 10% (albeit on zero volume).  

I have no idea where it's going to end up today (and I don't really care), but I sure as heck am tickled pink that the put spreads bought 3,500 times for $.58 are going to expire worthless (PS, this is a $200K bet evaporated into thin air overnight).

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