EXCO Resources (XCO) - Elevated Vol, Dipping Stock, Calendar Skew Disparity

EXCO Resources, Inc.(EXCO) is an independent oil and natural gas company engaged in the exploration, exploitation, development and production of onshore North American oil and natural gas properties.

I found XCO because of its elevated vol. In fact, as of early trading, the IV30™ had breached a new annual high. Let’s look to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



Starting with the stock portion, we can see how the underlying has been dipping for the last six months. On 8-2-2012 the stock closed at $15.94. As of this writing, that’s a 54.2% drop. In the vol portion we can see that the implied has been rising to new highs, then dropping a touch only to make another new high in the near future. The 52 wk range in IV30™ is [17.70%, 83.60%], putting the current level in the 95th percentile (and over the annual high intra-day).

I actually wrote about XCO in late Dec of last year when the stock was trading $10.56, noting the elevated vol at the time (IV30™ was 72.16%). Obviously, the stock is a lot lower and vol is higher in a month’s time. You can read that post here:
EXCO Resources (XCO) - Elevated Implied, Elevated Historical, More Insider Buying Than... Everyone

Let’s turn to the Options Tab before the Skew Tab for some month to month comps.



Two things to note here:

1. The next earnings release for XCO is due out on 2-23-2012 per Livevol® Pro (and the company’s investor relations website). That means the Mar options have a vol event that the Feb expiry does not.
2. Mar vol is priced above Feb – which makes sense given #1 above.

So far, nothing weird – until the Skew Tab, below.




I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. I will say that both Feb and Mar exhibit an upside skew – that is, the OTM calls increase in vol by line moving further OTM. But, Mar also exhibits a rising downside skew – a normal phenomenon. Feb, however, does not.

For a stock nearing an annual high in implied vols and down more than 50% in six months with no real sign of letting up, that depressed vol in the Feb 7 puts (relative to the Feb 8 calls) is pretty weird. Doing a little more analysis:

The Feb 7 puts are priced to almost 13 vol points lower than the Feb 8 calls. But, if the Feb 7 puts were priced to the same vol as the Feb 8 calls (like Mar is set up) – say 86 vol – those Feb 7 puts would be worth $0.08 more. Further, it wouldn’t be unusual to see "sticky" prices in the Feb puts given how close expiry is -- and therefore a vol above 90%. That would push the Feb 7 puts up by ~$0.10. Of course, that's not the case... Oddly, though the options reflect elevated risk in general, the downside in Feb doesn't reflect the same risk as the upside.

This is trade analysis, not a recommendation.