Turtle Beach Corp. (HEAR), Trending Stock Report

Turtle Beach Corp. (HEAR) appeared on our list of compressed stocks this morning. The company manufactures gaming headsets and peripheral devices for gaming, such as keyboards, mice, flight simulator controls, and race car simulator controls for computers and mobile devices.

As you can see in the charts on the left, the stock has a history of making big moves after a compression signal. Plus, the stock has a history of making big moves around earnings reports. In the chart on the right, you can see the gap moves in March and August around earnings, along with the related rise and fall in the two-month implied volatility

We can use our favorite option buying strategies to take advantage of a potential big move before the November 15^th options expire.

This Volatility Term Structure chart for HEAR shows us the implied volatility for the at-the-money options for each expiration. This chart shows that options expiring on November 15^th have higher volatility expectations than other expirations. That is because investors know that HEAR can make big moves around earnings report. An earnings report is expected in early November before the monthly options expire. Investors may still be underestimating the size of a potential move around the report.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of HEAR’s share prices over the past 3 years (the blue histogram). You can see that the actual stock movement shows that investors are expecting the stock to behave the way it has behaved in the past. If we just look at this graph, it tells us the options are fairly priced for a normal move. This graph does NOT show how the stock behaves after compression signals or earnings reports.

This Volatility Cone chart for HEAR 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 3 years. You can see that the two-month term (which is the term we are interested in) is very close to the 3-year average. This graph confirms that investors are expecting an average move. This graph does not show us the average moves after a compression signal or an earnings report.

HEAR share prices are compressed. The stock has a history of making big moves after compression signals and around earnings reports. Options prices tell us that investors are expecting an average move. The charts on page 2 tell us that investors are underestimating the potential of HEAR to make a bigger-than-expected move. This is an option buying situation.

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