It is very interesting that Canadian Imperial Bank of Commerce (CM) appeared on our list of compressed stocks this morning while the 1-month volatility expectations are very near a 2-year low. Why is it so interesting? Banks are extremely sensitive to interest rate policy. Not only will CM have an earnings report between now and September 20th, but there will be 2 important Fed events between now and September’s monthly options expiration. Also, there will be a load of inflation data that could be catalysts for the big moves in the entire banking industry. On top of that, CM has a strong history of making big moves after a compression signal. Just look at those charts below.

Don’t let the name fool you. While CM is headquartered in Toronto, Canada, it is a multinational bank that operates branches and offices in the U.S. from  New York and Massachusetts to Texas and California, and the stock is traded on U.S. exchanges. The bank will certainly be affected by U.S. interest rate policy.  

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This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of CM’s stock price over the past two years. You can see that the actual behavior (the blue histogram) made big moves more frequently than the modeled options prices expect. This graph tells us the CM options expiring on September 20th are inexpensive compared to the historical movement of CM’s actual stock price over the last two years. 

This Volatility Cone shows us that the volatility expectations (the yellow dots) are all closer to the 2-year extremely low historical volatility than they are to the 2-year historical average. To learn more about the Volatility Cone, click here. This indicator confirms that options at all terms are relatively cheap if the stock continues to behave the way it has over the last 2 years.

Looking at this Volatility Term Structure chart, we can see that all volatility expectations are relatively flat. To learn more about Volatility Term Structure, click here. The September 20th expiration implied volatility of the at-the-money options is 17.49. The lowest implied volatility is 14.23 and the highest is 18.25. The previous page showed us that all volatility expectations are low, and this Term Structure chart confirms it.

CM’s stock price has been trending flat enough that it showed up on our list of compressed stocks. The volatility expectations and relative options prices are very cheap. By going out to the September 20th expiration, we can buy cheap options that will have many potential catalysts that could help the stock make a bigger-than-expected move.

To get the details on today’s trade, be sure to read today’s ODDS Online Daily Option Trade Idea.

To access Odds Online Daily and be able to see any stock you are tracking in this software, click here.

Thank you,

Don Fishback