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Risk Malaise Alert in Option Market: Carter's Inc Implied Price Swing Hits A Substantially Lowered Level




Carter's Inc (NYSE:CRI) Risk Hits A Substantially Lowered Level

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that Carter's Inc (NYSE:CRI) 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 33.12% verus the IV30 of the S&P 500 at 11.15%. The annual high for Carter's Inc IV30 is 38.39% -- 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 Carter's Inc, 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 Carter's Inc (NYSE:CRI) . The creator of this model is Capital Market Laboratories (CMLviz.com).


Option trading isn't about luck -- this three 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 Carter's Inc 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 CRI and the company's risk rating:

We also take a peek at the implied vol for the Consumer Discretionary ETF (XLY), our broad based proxy for CRI.





SNAPSHOT SUMMARY
S&P 500 IV30     11.15%
Nasdaq 100 IV30     12.44%
XLY IV30     12.1%

CRI HV 30     17.33%
CRI Current IV30     33.12%
52 Week Low IV30     18.58%
52 Week High IV30     38.39%


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 ($85.10, $99.10) 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.

CRI 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. Carter's Inc shows an IV30 of 33.1%, which is a substantially lowered level for the company relative to its past.

The option market for CRI has shown an IV30 annual low of 18.6% and an annual high of 38.4%, meaning that CRI is at the 73% percentile right now. Here's a table of the data before we dig into the risk rating further.

CRI
Current IV30    
CRI
Low IV30    
CRI
High IV30   
33.1% 18.6% 38.4%

The implied stock swing risk from the option market reflects a wider range in the next 30 calendar days for Carter's Inc (NYSE:CRI) than it has on on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 17.33%.




We have a situation now where not only is the IV30 elevated relative to the past, but the option market reflects the likelihood of yet 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 Carter's Inc is priced (33.1%) compared to what happened just in the last 30-days (17.3%).

Carter's Inc Risk Rating
The CRI 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 above the annual average.
The HV30 is below the 20th percentile.
The HV30 is below 30%.
The IV30 is above the HV30.
The stock has moved +8.9% over the last 3-months which does indicate some elevated risk.