Weatherford International: Control Deficiencies and Delayed Filing Push Vol

Weatherford International Ltd. (WFT)  is a provider of equipment and services used in the drilling, evaluation, completion, production and intervention of oil and natural gas wells.

This is a vol note -- depressed vol popping on the day with a calendar vol diff opening up. There is some news -- it's a bit scary:

Weatherford files to delay its 10-K

As previously reported, the Company has not remediated its previously disclosed material weakness in internal control over financial reporting relating to current taxes payable, certain deferred tax assets and liabilities, reserves for uncertain tax positions, and current and deferred income tax expense.

Source: Provided by Briefing.com (www.briefing.com)

Tricky...

Let's start with 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).

On the stock side we can see the drop off of earnings just couple of weeks ago. On 2-17-2012 the stock closed at $17.59 (the day before earnings). Although the stock fell immediately following the release, the stock is now just below that initial level -- so a nice recovery. On the vol side we can see that the implied has fallen off of earnings (expected behavior) to below 40%.

The 52 wk range in IV30™ is [30.47%, 80.38%], so as of yesterday, that put implied in the 17th percentile (annual). As of today's vol pop, the implied is in the 29th percentile.  It is a bit odd that the vol is still well below the median given the news, so apparently, it's not a big deal?

Let's turn to the Skew Tab.


We can see how elevated the front expiry is to the back two. There's also a notable upside skew in the Mar options -- the Mar 19 and 20 calls increase in vol relative to the ATM. A fairly large vol diff has opened up between the front month and the back two.

I've included the Skew Tab from yesterday, below.

We can see that the front was in fact right about even with Apr and depressed relative to May just yesterday. This delayed filing stuff is pushing vol (read: risk) in the near-term.

Finally, let's turn to the Options Tab.


Mar, Apr and May are priced to 50.99%, 42.81% and 44.58%, respectively.

This is trade analysis, not a recommendation.