Do Options Traders Know Something About Chevron Stock We Don't?
Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.
Clearly, options traders are pricing in a big move for Chevron shares, but what is the fundamental picture for the company? Currently, Chevron is a Zacks Rank #5 (Sell) in the Oil and Gas - Integrated – International industry that ranks in the Bottom 5% of our Zacks Industry Rank. Over the last 30 days, one analyst has increased the earnings estimates for the current quarter, while two have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from $1.79 per share to $1.58 in that period.
Given the way analysts feel about Chevron right now, this huge implied volatility could mean there's a trade developing. Oftentimes, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.
Check out the simple yet high-powered approach that Zacks Executive VP Kevin Matras has used to close recent double and triple-digit winners. In addition to impressive profit potential, these trades can actually reduce your risk.
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