Option Market: Facebook Inc Risk Hits A Substantially Lowered Level

Facebook Inc (NASDAQ:FB) Risk Hits A Substantially 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 Facebook Inc (NASDAQ:FB) .

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

S&P 500 IV30     9.91%
Nasdaq 100 IV30     10.99%
XLK IV30     11.03%

FB HV 30     14.33%
FB Current IV30     17.5%
52 Week Low IV30     15.92%
52 Week High IV30     42.72%

The risk as reflected by the option market has hit a substantially lowered level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($130.10, $140.90) 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. Facebook Inc shows an IV30 of 17.5%, which is a substantially lowered level for the company relative to its past.

The option market for FB has shown an IV30 annual low of 15.9% and an annual high of 42.7%, meaning that FB is at the 6% percentile right now. Here's a table of the data before we dig into the risk rating further.

Current IV30    
Low IV30    
High IV30   
17.5% 15.9% 42.7%

The option market reflects extremeley less risk in the next 30 calendar days for Facebook Inc (NASDAQ:FB) than on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 14.33%.

We have an unusual situation now where the IV30 is extremely 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 much higher the forward looking risk for Facebook Inc is priced (17.5%) compared to what happened just in the last 30-days (14.3%).

Facebook Inc Risk Rating
The FB risk rating is at 1.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 1.5 rating are:

The IV30 is below the 20th percentile.
The IV30 is below 30%.
The HV30 is below the 20th percentile.
The HV30 is below 30%.
The IV30 is above the HV30.
The stock has moved +12.6% over the last 3-months which does indicate some elevated risk.