Option Market: Preferred Bank Risk Hits A Weakened Level

Preferred Bank (NASDAQ:PFBC) Risk Hits A Weakened Level

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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 Preferred Bank (NASDAQ:PFBC) .

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

We also take a peek at the implied vol for the Financials ETF (XLF), our broad based proxy for PFBC.

S&P 500 IV30     9.06%
Nasdaq 100 IV30     10.37%
XLF IV30     15.31%

PFBC HV 30     37.77%
PFBC Current IV30     25.41%
52 Week Low IV30     20.79%
52 Week High IV30     58.22%

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 ($53.10, $59.70) 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. Preferred Bank shows an IV30 of 25.4%, which is a weakened level for the company relative to its past.

The option market for PFBC has shown an IV30 annual low of 20.8% and an annual high of 58.2%, meaning that PFBC is at the 12% percentile right now. Here's a table of the data before we dig into the risk rating further.

Current IV30    
Low IV30    
High IV30   
25.4% 20.8% 58.2%

The option market reflects substanially less risk in the next 30 calendar days for Preferred Bank (NASDAQ:PFBC) than on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 37.77%.

We have a situation now where the IV30 is substantially depressed relative to the past resulting in a risk pricing of less stock movement in the next 30-days than the stock has see in the last 30-days. Let's turn to a chart to see what's going on.
Note how much lower the forward looking risk for Preferred Bank is priced (25.4%) compared to what happened just in the last 30-days (37.8%).

Preferred Bank Risk Rating
The PFBC 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 20th percentile.
The IV30 is below 30%.
The HV30 is above the 80th percentile.
The IV30 is below the HV30.
The stock has moved +31.5% over the last 3-months which does indicate some elevated risk.