does revenue seasonality translate to vol seasonality?
Friends,
Last month H&R Block (NYSE: HRB) sold off hard on AI fears.
Implied volatility soared to a new 1-year high.
I wouldn’t have noticed if I wasn’t prepping materials for the kids’ Investment Beginnings Class. In the class, we learn how growth expectations as embodied by P/E multiples combined with what earnings materialize to generate a return that is some mix of reality and how those expectations are revised as investors “see the flop”.
HRB is a low P/E, high earnings yield company whose growth days are a distant memory. It doesn’t have a lot of upside but if it can maintain its current earnings and multiple its earnings yield of 16% (P/E ~ 6) looks like a super, super distressed bond. I know bonds and stocks have different hockey stick diagrams, but stay with me.
Selling a cash-secured put has similar risk characteristics as buying a bond. You collect some yield, your upside is capped at the yield, and you risk the notional amount of the strike if the stock zeroes. With the implied vol jacked, my thinking is all that vol belongs to the left of the distribution. I’m not bullish on the company. I’m not really anything as I’m not studying the company in any fundamental depth but my sling-from-the-hip trading attitude is:
This company has survived every existential threat thrown at it — the transition from brick-and-mortar to internet filing, the rise of TurboTax, and a significant increase in the standard deduction. Looks like a cockroach.
And they don’t fancy themselves more than that. Between buybacks and dividends, their shareholder yield is similar to their earnings yield. They are distributing all the cash back to shareholders so those earnings aren’t trapped inside a melting ice cube.
With implied vol jacked, I decided instead of buying the stock outright I’d skim the yield by “selling my own version of a bond”. I sold some 40 delta puts and sized it such that if I were assigned on them, it would not amount to more than 1% of my portfolio.
That’s all storytime background. I’ve written about seasonality in the context of commodities and futures spreads but HRB is a dramatic example of seasonality in an equity.
Today:
We’ll explore how to even observe the pattern and consider how it influences option pricing.
The post will include 2 Jupyter notebooks you can fork and let Codex or Claude Code run the same analysis on any tickers you like. They will automatically pull yfinance. One notebook is focused on stocks and another is focused on commodity ETFs.
