Stock Volatility Risk Alert: Preferred Bank Price Volatility Hits An Unsually High Level

Preferred Bank (NASDAQ:PFBC) Price Volatility Hits An Unsually High Level

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Stock Risk Alert
Before we cover the full analysis we make a quick alert here that Preferred Bank (NASDAQ:PFBC) has seen its stock price whip around at an escalated level. We'll go through the details below -- but that's the lede -- the stock has been moving and the market's reaction is like a yellow post it note on the face of the ticker that reads "this is not equilibrium" with an HV20 of 38.95% verus the HV20 of the S&P 500 at 6.42%.

Another bit to this risk alert, which we cover in the article, is that while the historical volatility may be an escalated level (the stock has been whipping around), the real question that needs to be answered for option traders is not if the HV20 is high, but rather if the implied volatility that is priced for the next 30-days accuratley reflects what we're about to see in the stock for the next month.

To jump forward and examine if owning or shorting options has been a positive trade in Preferred Bank, you can go here: Getting serious about option trading.

This is a proprietary realized volatility rating created by Capital Market Laboratories (CMLviz) based on a large number of data interactions for Preferred Bank (NASDAQ:PFBC) . We examine the little used gem of daily stock volatility over a 20-day and 30-day trading period, as well as comparisons to the last year and the actual stock returns over the last three- and six-months and the S&P 500 and Nasdaq 100 indices.

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As a heads up, in the "Why This Matters" section at the end of this article on Preferred Bank (NASDAQ:PFBC) , we're going to take a step back and show really clearly that there is actually a lot less "luck" in successful option trading than most people are aware of. This idea of an "option trading expert" is vastly over complicated so those with the information advantage can continue to profit at the expense of the rest.

But before that, let's turn back to PFBC. Here are the exact steps that led us to this rating, and whether it's a risk alert or a holding pattern.

PFBC Recent Price Volatility

Price volatility using proprietary measures has hit an escalated level. Let's take a deep dive into some institutional level volatility measures for Preferred Bank (NASDAQ:PFBC) .

Preferred Bank Stock Performance
PFBC is down -6.6% over the last three months and up +40.7% over the last six months. The stock price is up +59.2% over the last year. The current stock price is $48.34.

PFBC Step 1: Stock Returns
The one-year stock return does not impact the volatility rating since we are looking at a shorter time horizon. However, the rating does examine the 3-month returns and the absolute difference between the 3-month and 6-month returns.

  The 3-month stock return of -6.6% is too small to impact the price volatility rating for PFBC.
  The expansive difference between the 3-month and 6-month stock returns has a fairly large impact on the price volatility rating for PFBC.

PFBC Step 2: Daily Price Volatility Level
The HV30® takes the stock's day to day historical volatility over the last 30-days and then annualizes it. The HV20 looks back over just 20-days -- a shorter time period. Here is the breakdown for Preferred Bank (NASDAQ:PFBC) and how the day-by-day price historical volatilities have impacted the rating:

  The HV20 of 45.1% is in the middle ground, neither elevated nor depressed, so in this case the raw HV20 number has no impact on PFBC's volatility rating.

PFBC Step 3: Preferred Bank HV20 Compared to Indices
* The HV20 for PFBC is substantially larger than that for both the S&P 500 and the NASDAQ 100 which raises the volatility rating.

* The HV20 for PFBC is substantially larger than that for the Financials ETF (XLF) which raises the volatility rating.

Here is summary data in tabular and chart format.

   S&P 500
   NASDAQ 100
           45.1%    6.42%    7.48%    14.51%

PFBC Step 4: Daily Volatility Percentiles and Highs

We also examine the annual high of the HV30 in our rating but in this case the 52 week high in HV30 for PFBC is 41.7%, which is not enough to impact the price volatility rating.

Here is summary data in tabular and chart format.

HV30 High   
           45.1%    39.0%    41.7%

Final Price Volatility Percentile Level: PFBC
The final evolution of the volatility rating for Preferred Bank is a comparison of the HV30 value relative to its past, which is neatly summarized in the percentile -- a scoring mechanism that goes from a low of 1 to a high of 100.

  The HV30 percentile for Preferred Bank is 90%, which means the stock has seen highly volatile price movement relative to its own past and that has a substantial impact on the price volatility rating.

Preferred Bank Realized Volatility Percentiles