Option Market: K12 Inc Risk Hits An Elevated Level

K12 Inc (NYSE:LRN) Risk

Date Published:

2016-07-18

PREFACE

This is a proprietary risk rating for the next 30-days built by Capital Market Laboratories (CMLviz) based on a large number of interactions of data points, many of which
come directly from the option market for K12 Inc (NYSE:LRN) .

Risk as reflected by the option market has hit
a slightly elevated level relative to the company’s past. The option market reflects a 95% confidence interval stock price range of
($11.90, $15.00) within the next 30 calendar days.

LRN OPTION MARKET RISK

The short-term risk for a stock is reflected in the option market by a measure called the 30-day implied volatility or IV30®.
The IV30 is the risk reflected by the option market in the stock price for the next 30 calendar days — it’s forward looking.
K12 Inc shows an IV30 of 50.1%, which is a slightly elevated level for the company relative to its past.

The option market for LRN has shown an IV30 annual low of
38.6% and an annual high of 72.8%, meaning that LRN is at the 34% percentile right now. Here’s a table of the data before we dig into the risk rating further.

LRN
Current IV30    
LRN
Low IV30    
LRN
High IV30   
50.1% 38.6% 72.8%

01020304050607080Current IV30Low IV30High IV30

The option market reflects less risk in the next 30 calendar days for K12 Inc (NYSE:LRN) than on average.

Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 39.03%.

We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater stock movement in the next 30-days than the stock has realized in the last 30-days.

Let’s turn to a chart to see what’s going on.

 0510152025303540455055Next 30 DaysLast 30 Days

Note how much higher the future risk for K12 Inc is priced (50.1%) compared to what happened just in the last 30-days (39.0%).

K12 Inc Risk Rating

The LRN risk rating is at 3.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 3.5 rating are:

↪ The IV30 is below the annual average.

↪ The IV30 is above 50%.

↪ The HV30 is below the 20th percentile.

↪ The IV30 is above the HV30.

↪ The stock has moved +33.0% over the last 3-months which does indicate some elevated risk.

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