Transcat, Inc. (TRNS), Trending Stock Report

Transcat, Inc. (TRNS) appeared on our list of compressed stocks this morning. When you hear the name Transcat, you’re probably not thinking of a company that provides tools and measuring equipment to biotech and pharmaceutical companies, but that’s exactly what TRNS does.

The stock has a history of making big moves after a compression signal and the options are inexpensive relative to its history. We will look at longer-term options to make sure we get a period where the stock will have an earnings report as a potential catalyst for a big move. TRNS is scheduled to announce earnings late October or early November.

This Volatility Term Structure chart for TRNS shows us the implied volatility for the at-the-money options for each expiration. It may look like there is a big difference in volatility expectations when you look at this chart, but the reality is that expectations are relatively flat across terms. The difference between the high and the low is about 5%. That is not a huge difference in expectations, especially considering there is an earnings report in between the October and December expirations.

This Volatility Cone chart for TRNS 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 three-month term (which is the term we are interested in) is right at the historical low. This confirms that the options for that term are relatively inexpensive.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of MU’s share prices over the past year (the blue histogram). You can see that the actual stock movement shows that the stock tends to make bigger moves than current options prices expect.

TRNS share prices are compressed. The stock has a history of making big moves after a compression signal. The stock also has a history of making big moves after an earnings report. TRNS options are mispriced too cheap, considering the previous behavior of the stock after one of these events. This is an option buying opportunity.

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