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Stock Alert and Holding Pattern: Facebook Inc Stock Volatility Hits An Inflection Point




Facebook Inc (NASDAQ:FB) Stock Volatility Hits An Inflection Point

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Stock Alert and Holding Pattern
Before we cover the full analysis we make a quick alert here that Facebook Inc (NASDAQ:FB) has seen its stock price move at an inflection point 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 21.21% verus the HV20 of the S&P 500 at 6.54%.



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 inflection point 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 Facebook Inc, you can go here: Getting serious about option trading.

PREFACE
This is a proprietary realized volatility rating created by Capital Market Laboratories (CMLviz) based on a large number of data interactions for Facebook Inc (NASDAQ:FB) . 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.
Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth

As a heads up, in the "Why This Matters" section at the end of this article on Facebook Inc (NASDAQ:FB) , 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 FB. Here are the exact steps that led us to this rating, and whether it's a risk alert or a holding pattern.

FB Recent Stock Volatility


Rating
Stock volatility using proprietary measures has hit an inflection point level.

Note
Even though Facebook Inc generates substantial revenue, its a small cap technology company which means FB is susceptible to excessive risk. 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 Facebook Inc (NASDAQ:FB) .

Facebook Inc Stock Performance
FB is up +2.1% over the last three months and up +10.4% over the last six months. The stock price is up +40.6% over the last year. The current stock price is $179.8.

FB 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 +2.1% is too small to impact the stock volatility rating for FB.
  The small difference between the 3-month and 6-month stock returns does not impact the stock volatility rating for FB.

FB Step 2: Daily Stock 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 Facebook Inc (NASDAQ:FB) and how the day-by-day stock historical volatilities have impacted the rating:

  The HV20 of 23.0% is low enough that it has a downward impact on FB's volatility rating.


FB Step 3: Facebook Inc HV20 Compared to Indices
* The HV20 for FB is substantially larger than that for both the S&P 500 and the NASDAQ 100 which raises the volatility rating.

* The HV20 for FB is substantially larger than that for the Technology ETF (XLK) which raises the volatility rating.

Here is summary data in tabular and chart format.

           FB
           HV20    
   S&P 500
HV20
   NASDAQ 100
HV20   
   XLK
HV20   
           23.0%    6.54%    9.98%    9.81%

FB Step 4: Daily Volatility Percentiles and Highs

We also examine the annual high of the HV30 in our rating but in this case the 52 week high in HV30 for FB is 23.8%, which is not enough to impact the stock volatility rating.

Here is summary data in tabular and chart format.

           FB
           HV20    
   FB
HV30
   FB
HV30 High   
           23.0%    21.2%    23.8%

Final Stock Volatility Percentile Level: FB
The final evolution of the volatility rating for Facebook 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 Facebook Inc is 84%, which means the stock has seen substantially elevated volatile price movement relative to its own past and that has an impact on the stock volatility rating.

Facebook Inc Realized Volatility Percentiles