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Risk Malaise Alert in Option Market: First Bancorp Implied Price Swing Hits A Deteriorated Level




First Bancorp (NASDAQ:FBNC) Risk Hits A Deteriorated Level

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that First Bancorp (NASDAQ:FBNC) risk is actually priced pretty low by the option market as of right now. We'll detail it below -- but that's the lede -- the option market is reflecting a sort of risk malaise, for now, an IV30 of 22.79% verus the IV30 of the S&P 500 at 8.97%. The annual high for First Bancorp IV30 is 74.11% -- and we're below that level. The alert here is low vol.



One thing to note beyond the risk malaise alert, which we cover in the article, is that while implied volatility may be low, the real question that needs to be answered for option sellers is not if the impled vol is low, but rather if the realized volatility that is coming in the next 30 days will be lower than the option market is pricing.

To skip ahead of this risk alert and see if buying or selling options has been a winner in First Bancorp, you can go here: Geting serious about option trading.

PREFACE
This is a proprietary risk rating and risk alert system that looks forward for the next month -- or really 30 days to be exact -- and that includes weekends. The system is based on multiple interactions of data points, many of which come directly from the option market for First Bancorp (NASDAQ:FBNC) . The creator of this model is Capital Market Laboratories (CMLviz.com).


Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth

In the "Why This Matters" section at the end of this article on First Bancorp 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 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.





SNAPSHOT SUMMARY
S&P 500 IV30     8.97%
Nasdaq 100 IV30     9.1%
XLF IV30     13.46%

FBNC HV 30     20.43%
FBNC Current IV30     22.79%
52 Week Low IV30     12.07%
52 Week High IV30     74.11%


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 ($27.80, $30.90) 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.

FBNC OPTION MARKET RISK
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 22.8%, which is a deteriorated 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.

FBNC
Current IV30    
FBNC
Low IV30    
FBNC
High IV30   
22.8% 12.1% 74.1%

The implied stock swing risk from the option market is significantly tighter in the next 30 calendar days for First Bancorp (NASDAQ:FBNC) than it has been on average for the year.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 20.43%.




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 much higher the forward looking stock swing price risk for First Bancorp is priced (22.8%) compared to what happened just in the last 30-days (20.4%).

First Bancorp Risk Rating
The FBNC 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 20th percentile.
The IV30 is below 30%.
The HV30 is above the annual average.
The HV30 is below 30%.
The IV30 is above the HV30.