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Risk Malaise Alert in Option Market: TE Connectivity Ltd. Implied Price Swing Hits A Depressed Level




TE Connectivity Ltd. (NYSE:TEL) Risk Hits A Depressed Level

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that TE Connectivity Ltd. (NYSE:TEL) 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 22.19% verus the IV30 of the S&P 500 at 11.15%. The annual high for TE Connectivity Ltd. IV30 is 33.58% -- 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 TE Connectivity Ltd., 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 TE Connectivity Ltd. (NYSE:TEL) . The creator of this model is Capital Market Laboratories (CMLviz.com).

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In the "Why This Matters" section at the end of this article on TE Connectivity Ltd. 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 TEL and the company's risk rating:

We also take a peek at the implied vol for the Technology ETF (XLK), our broad based proxy for TEL.





SNAPSHOT SUMMARY
S&P 500 IV30     11.15%
Nasdaq 100 IV30     12.44%
XLK IV30     12.46%

TEL HV 30     14.88%
TEL Current IV30     22.19%
52 Week Low IV30     15.47%
52 Week High IV30     33.58%


The risk as reflected by the option market has hit a depressed level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($69.60, $77.00) 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.

TEL 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. TE Connectivity Ltd. shows an IV30 of 22.2%, which is a depressed level for the company relative to its past.

The option market for TEL has shown an IV30 annual low of 15.5% and an annual high of 33.6%, meaning that TEL is at the 37% percentile right now. Here's a table of the data before we dig into the risk rating further.

TEL
Current IV30    
TEL
Low IV30    
TEL
High IV30   
22.2% 15.5% 33.6%

The implied stock swing risk from the option market has created a range which is tighter in the next 30 calendar days for TE Connectivity Ltd. (NYSE:TEL) 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 14.88%.




We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater 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 higher the forward looking stock swing price risk for TE Connectivity Ltd. is priced (22.2%) compared to what happened just in the last 30-days (14.9%).

TE Connectivity Ltd. Risk Rating
The TEL 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 annual average.
The IV30 is below 30%.
The HV30 is below the 20th percentile.
The HV30 is below 30%.
The IV30 is above the HV30.