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Banks Take Multiple Paths to Financial Health

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A look at the implied volatility of 19 large financial insitutions.

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Sunday's chart of the week, which looked at Implied Volatility of DJIA Components: Now vs. 52 Week High, received enough interest to warrant a follow-up that examines the current implied volatility versus the 52-week high IV of the 19 financial institutions which were subjected to the government stress tests.

The chart below sorts the financial institutions from left to right according to their 52-week implied volatility highs, with General Motors (GMGMQ) omitted. While not captured in the graphic, I find it interesting that the two institutions whose current IV is the lowest compared to the high IV are Morgan Stanley (MS) at 12.7% of the 52-week high and Goldman Sachs (GS) at 18.9% of the 52-week high. Those institutions whose current IV is closest to the 52-week high (in percentage terms) are BB&T (BBT) at 36.3% and Regions Financial (RF) at 34.6%.


Click to enlarge


So, going solely on the percentage retracement from implied volatility highs, it appears as if the investment banks are healthiest and have shed the most risk, while regional banks have undergone a much more measured healing process -- about what one might expect. Clearly this is a story of multiple different pathways back to financial health.
No positions in stocks mentioned.

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