Option Market First Bancorp Risk Hits A Lowered Level

Option Market: First Bancorp Risk Hits A Lowered Level

First Bancorp (NASDAQ:FBNC) Risk Hits A Lowered 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 First Bancorp (NASDAQ:FBNC) .

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But first, let's turn back to FBNC 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 FBNC.

S&P 500 IV30     9.91%
Nasdaq 100 IV30     10.99%
XLF IV30     16.13%

FBNC HV 30     22.03%
FBNC Current IV30     22.63%
52 Week Low IV30     12.07%
52 Week High IV30     74.11%

The risk as reflected by the option market has hit a lowered level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($29.30, $32.50) 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. First Bancorp shows an IV30 of 22.6%, which is a lowered level for the company relative to its past.

The option market for FBNC has shown an IV30 annual low of 12.1% and an annual high of 74.1%, meaning that FBNC is at the 17% percentile right now. Here's a table of the data before we dig into the risk rating further.

Current IV30    
Low IV30    
High IV30   
22.6% 12.1% 74.1%

The option market reflects substanially less risk in the next 30 calendar days for First Bancorp (NASDAQ:FBNC) than on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 22.03%.

We have an unusual situation now where the IV30 is substantially depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of more stock movement in the next 30-days than it has in the last 30-days. Let's turn to a chart to see what's going on.
Note how similar the forward risk for First Bancorp is priced (22.6%) compared to what happened just in the last 30-days (22.0%).

First Bancorp Risk Rating
The FBNC 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 annual average.
The HV30 is below 30%.
The stock has moved +22.0% over the last 3-months which does indicate some elevated risk.