Stock Alert and Holding Pattern: Silver Spring Networks Inc Realized Volatility Hits An Amplified Level

Silver Spring Networks Inc (NYSE:SSNI) Realized Volatility Hits An Amplified Level

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Stock Alert and Holding Pattern
Before we cover the full analysis we make a quick alert here that Silver Spring Networks Inc (NYSE:SSNI) has seen its stock price move at an amplified level. We'll go through the details below -- but that's the lede -- the stock has been behaving, roughly speaking, 'normally.' If there was a post it note to summarize the stock movement in the last 30-days it would likely read "holding pattern." The HV20 is 54.47% verus the HV20 of the S&P 500 at 8.95%.

But don't confuse a holding pattern with low risk -- this is quite possibly an inflection point.

Another bit to this holding pattern, which we cover in the article, is that while the historical volatility may be an amplified level, the real question that needs to be answered for option traders is not if the HV20 is high or low, 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 Silver Spring Networks Inc, 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 Silver Spring Networks Inc (NYSE:SSNI) . 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 Silver Spring Networks Inc (NYSE:SSNI) , 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 SSNI. Here are the exact steps that led us to this rating, and whether it's a risk alert or a holding pattern.

SSNI Recent Realized Volatility

Realized volatility using proprietary measures has hit an amplified level.

Even though Silver Spring Networks Inc generates substantial revenue, its a small cap technology company which means SSNI is susceptible to excessive risk.

We also note that SSNI has negative GAAP earnings in the last year which makes it ever more susceptible to stock volatility. Here is a rolling annual volatility chart of the biotech index (IBB) versus the Nasdaq 100 and the S&P 500. Note how elevated the technology sector volatility is (the yellow curve) relative to the S&P 500.

Let's take a deep dive into some institutional level volatility measures for Silver Spring Networks Inc (NYSE:SSNI) .

Silver Spring Networks Inc Stock Performance
SSNI is up +21.8% over the last three months and up +12.5% over the last six months. The stock has returned -5.0% over the last year. The current stock price is $12.65.

SSNI 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 +21.8% has a substantial impact on the realized volatility rating for SSNI.
  The small difference between the 3-month and 6-month stock returns does not impact the realized volatility rating for SSNI.

SSNI Step 2: Daily Realized 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 Silver Spring Networks Inc (NYSE:SSNI) and how the day-by-day realized historical volatilities have impacted the rating:

  The HV20 of 15.1% is quite low and has a substantial downward impact on SSNI's volatility rating.

SSNI Step 3: Silver Spring Networks Inc HV20 Compared to Indices
* The HV20 for SSNI is greater than that for both the S&P 500 and the NASDAQ 100 which has a small impact on the volatility rating.

* The HV20 for SSNI is larger than that for the Technology ETF (XLK) which raises the volatility rating a little.

Here is summary data in tabular and chart format.

   S&P 500
   NASDAQ 100
           15.1%    8.95%    13.29%    12.45%

SSNI Step 4: Daily Volatility Percentiles and Highs

We also examine the annual high of the HV30 in our rating.
  The 52 week high in HV30 for SSNI is 60.9%, which is high and has an upward impact on the realized volatility rating.

Here is summary data in tabular and chart format.

HV30 High   
           15.1%    54.5%    60.9%

Final Realized Volatility Percentile Level: SSNI
The final evolution of the volatility rating for Silver Spring Networks Inc 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 Silver Spring Networks Inc is 85%, which means the stock has seen substantially elevated volatile price movement relative to its own past and that has an impact on the realized volatility rating.

Silver Spring Networks Inc Realized Volatility Percentiles