Haphazard Linkages

Event-specific circumstances, sometimes, create interesting situations for deploying capital. The Indian Natural Gas sector presented one such instance; in Equities and Implied Volatility, this week.  Background note here .  IVs popped across the board, principally manifesting in Indraprastha Gas (Bloomberg: IGL IN, NSE: IGL), which was the chief victim in the melee. Reacting to the adverse regulatory pronouncement, other companies in the Natural Gas space too came under fire from investors, IVs spiked as stock prices swooned. IGL stock fell over 40% within minutes and other companies shed double digit percent. Petronet LNG (Bloomberg: PLNG IN, NSE: PETRONET ), however, should have escaped relatively unscathed, as the ruling is expected to have little impact on its earnings power. But fear is a pervasive force, which divorces with rationality in time of duress. Time eventually acts as an arbiter in the estrangement but the process is gradual and fraught with roadbloc...

It has been quite an eventful day for the Indian Natural Gas pack, which are quite effervescent as I write.  The ruckus was triggered by a ruling by the Petroleum and Natural Gas Regulatory Board (PNGRB), fixing new tariffs for natural gas players . The PNGRB lowered gas network tariffs and compression charges by over 60% each. This prompted a free fall in stock prices of Natural Gas companies, with Indraprastha Gas (Bloomberg: IGL IN, NSE: IGL) caving in 40% within minutes of market open, on the back of rampant selling, as sell-side analysts rapidly scaled down forecasts. Other stocks shed between 5-15%. A ruckus is generally kind to Volatility. Natural Gas Implied Volatility, which was quite tepid since mid-March '12, spiked reacting to the adverse newsflow. IV skews, which were flattish around the long weekend (April 4, 2012), have now turned into smirks as Puts have come into focus. The scramble for buying protection has pushed up Put prices. Spiking IVs offer attrac...