International Gaming Technology PLC (IGT), Trending Stock Report

International Gaming Technology PLC (IGT) appeared on our list of compressed stocks this morning. IGT provides gaming products and services to casinos and lotteries around the world.

The stock has a history of making big moves after compression signals and after earnings reports. By going out to November 15^th expiration we can take advantage of options that look to be mispriced considering the stock’s history around these two events.

There are three charts below. The one on the right shows the stock price action and the 2-month implied volatility. You can see the current implied volatility is near a 1-year low. You can also see the gap move higher that occurred when the company reported earnings in July. You can also see there was a big move down around earnings in March, as well as a wild move down and back up around last year’s October report. In the chart on the far left, you can see the huge down move after a compression signal in 2020. The chart in the middle shows us that investors are expecting the stock to stay in an extremely narrow range even though the stock’s history shows that the stock price does not tend to sit still very long, especially with an earnings report due before the November 15^th options expire.

This Volatility Term Structure chart for IGT shows that options expiring on November 15^th have very low volatility expectations considering that there is an earnings report due before those options expire.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of IGT’s share prices over the past year (the blue histogram). You can see that the actual stock price has made big moves much more frequently in just the last year than current options prices expect.

This Volatility Cone chart for IGT compares implied volatility expectations for each term to the historical volatility for that same term. The blue line shows the average historical volatility, the purple lines show each HV measure’s highest high and the lowest low over the past year. You can see that the two-month term (which is the term we are interested in) is near the extremely low historical volatility. This confirms that volatility expectations and options prices are extremely low relative to the stock’s history.