news.cmlviz.com
menu
share

Risk Malaise Alert in Option Market: Community Bank System Inc Implied Price Swing Hits An Extreme Low




Community Bank System Inc (NYSE:CBU) Risk Hits An Extreme Low

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that Community Bank System Inc (NYSE:CBU) 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 25.06% verus the IV30 of the S&P 500 at 11.15%. The annual high for Community Bank System Inc IV30 is 34.08% -- 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 Community Bank System 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 Community Bank System Inc (NYSE:CBU) . 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 Community Bank System 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 CBU 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 CBU.





SNAPSHOT SUMMARY
S&P 500 IV30     11.15%
Nasdaq 100 IV30     12.44%
XLF IV30     17.29%

CBU HV 30     28.76%
CBU Current IV30     25.06%
52 Week Low IV30     17.78%
52 Week High IV30     34.08%


The risk as reflected by the option market has hit an extreme low relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($50.90, $57.10) 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.

CBU 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. Community Bank System Inc shows an IV30 of 25.1%, which is an extreme low for the company relative to its past.

The option market for CBU has shown an IV30 annual low of 17.8% and an annual high of 34.1%, meaning that CBU is at the 45% percentile right now. Here's a table of the data before we dig into the risk rating further.

CBU
Current IV30    
CBU
Low IV30    
CBU
High IV30   
25.1% 17.8% 34.1%

The implied stock swing risk from the option market has created a range which is tighter in the next 30 calendar days for Community Bank System Inc (NYSE:CBU) than it has been on average for the last year on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 28.76%.




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 stock swing price risk for Community Bank System Inc is priced (25.1%) compared to what happened just in the last 30-days (28.8%).

Community Bank System Inc Risk Rating
The CBU risk rating is at 1, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 1 rating are:

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