Option Market: Rockwell Automation Inc Risk Hits A Weakened Level

Rockwell Automation Inc (NYSE:ROK) Risk Hits A Weakened Level

Date Published:

We're going to look at a proprietary risk rating for the next 30-days built by Capital Market Laboratories (CMLviz) based on a large number of interactions of data points, many of which come directly from the option market for Rockwell Automation Inc (NYSE:ROK) .

In the "Why This Matters" section at the end of this article on Rockwell Automation Inc (NYSE:ROK) we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to ROK and the company's risk rating:

We also take a peek at the implied vol for the Technology ETF (XLK), our broad based proxy for ROK.

S&P 500 IV30     10.87%
Nasdaq 100 IV30     14.76%
XLK IV30     14.77%

ROK HV 30     17.68%
ROK Current IV30     23.64%
52 Week Low IV30     17.8%
52 Week High IV30     42.89%

The risk as reflected by the option market has hit a weakened level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($130.50, $145.40) within the next 30 calendar days.

While the option market risk rating is on the low side, we note that companies in this situation are still susceptible to sudden stock move risk, it's simply the probability of that large stock move is depressed. Buyers of options and volatility may find these prices more attractive than at other times.

The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Rockwell Automation Inc shows an IV30 of 23.6%, which is a weakened level for the company relative to its past.

The option market for ROK has shown an IV30 annual low of 17.8% and an annual high of 42.9%, meaning that ROK is at the 23% percentile right now. Here's a table of the data before we dig into the risk rating further.

Current IV30    
Low IV30    
High IV30   
23.6% 17.8% 42.9%

The option market reflects less risk in the next 30 calendar days for Rockwell Automation Inc (NYSE:ROK) than on average. Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 17.68%.

We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater stock movement in the next 30-days than the stock has realized in the last 30-days. Let's turn to a chart to see what's going on.
Note how much higher the forward looking risk for Rockwell Automation Inc is priced (23.6%) compared to what happened just in the last 30-days (17.7%).

Rockwell Automation Inc Risk Rating
The ROK risk rating is at 2.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 2.5 rating are:

The IV30 is below the annual average.
The IV30 is below 30%.
The HV30 is below the annual average.
The HV30 is below 30%.
The IV30 is above the HV30.
The stock has moved +15.7% over the last 3-months which does indicate some elevated risk.