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Risk Malaise Alert in Option Market: First Midwest Bancorp Inc Implied Price Swing Hits A Collapsing Low




First Midwest Bancorp Inc (NASDAQ:FMBI) Risk Hits A Collapsing Low

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that First Midwest Bancorp Inc (NASDAQ:FMBI) 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 27.59% verus the IV30 of the S&P 500 at 11.15%. The annual high for First Midwest Bancorp Inc IV30 is 33.25% -- 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 Midwest Bancorp 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 First Midwest Bancorp Inc (NASDAQ:FMBI) . The creator of this model is Capital Market Laboratories (CMLviz.com).

Discover the power of applying science to your options trading in a free webinar:
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In the "Why This Matters" section at the end of this article on First Midwest Bancorp 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 FMBI 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 FMBI.





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

FMBI HV 30     23.81%
FMBI Current IV30     27.59%
52 Week Low IV30     7.72%
52 Week High IV30     33.25%


The risk as reflected by the option market has hit a collapsing low relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($21.90, $24.90) 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.

FMBI 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 Midwest Bancorp Inc shows an IV30 of 27.6%, which is a collapsing low for the company relative to its past.

The option market for FMBI has shown an IV30 annual low of 7.7% and an annual high of 33.3%, meaning that FMBI is at the 78% percentile right now. Here's a table of the data before we dig into the risk rating further.

FMBI
Current IV30    
FMBI
Low IV30    
FMBI
High IV30   
27.6% 7.7% 33.3%

The implied stock swing risk from the option market reflects a wider range in the next 30 calendar days for First Midwest Bancorp Inc (NASDAQ:FMBI) than it has on on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 23.81%.




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 First Midwest Bancorp Inc is priced (27.6%) compared to what happened just in the last 30-days (23.8%).

First Midwest Bancorp Inc Risk Rating
The FMBI 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 above the annual average.
The IV30 is below 30%.
The HV30 is below the annual average.
The HV30 is below 30%.
The IV30 is above the HV30.
The stock has moved just -3.4% over the last 3-months which does indicate some depressed risk.