Option Market Flagstar Bancorp Inc Risk Hits A Deteriorated Level

Option Market: Flagstar Bancorp Inc Risk Hits A Deteriorated Level

Flagstar Bancorp Inc (NYSE:FBC) Risk Hits A Deteriorated 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 Flagstar Bancorp Inc (NYSE:FBC) .

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

S&P 500 IV30     9%
Nasdaq 100 IV30     9.99%
XLF IV30     14.31%

FBC HV 30     40.56%
FBC Current IV30     26.04%
52 Week Low IV30     21.85%
52 Week High IV30     38.05%

The risk as reflected by the option market has hit a deteriorated level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($26.00, $29.30) 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. Flagstar Bancorp Inc shows an IV30 of 26.0%, which is a deteriorated level for the company relative to its past.

The option market for FBC has shown an IV30 annual low of 21.9% and an annual high of 38.1%, meaning that FBC is at the 26% percentile right now. Here's a table of the data before we dig into the risk rating further.

Current IV30    
Low IV30    
High IV30   
26.0% 21.9% 38.1%

The option market reflects less risk in the next 30 calendar days for Flagstar Bancorp Inc (NYSE:FBC) than on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 40.56%.

We have a situation now where the IV30 is depressed relative to the past and at the same time the option market reflects the likelihood of a smaller 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 lower the forward looking risk for Flagstar Bancorp Inc is priced (26.0%) compared to what happened just in the last 30-days (40.6%).

Flagstar Bancorp Inc Risk Rating
The FBC risk rating is at 2, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 2 rating are:

The IV30 is below the annual average.
The IV30 is below 30%.
The HV30 is above the 80th percentile.
The IV30 is below the HV30.