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Implied Volatility Surging for Rite Aid (RAD) Stock Options

Investors in shares of Rite Aid Corporation RAD need to pay close attention to the stock based on moves in the options market lately. That is because the Put which expires on Apr 21, 2017 for the $9.00 strike price had some of the highest implied volatility of all equity options today.

What is Implied Volatility?

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility could mean 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 could 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.

What do the Analysts Think?

Clearly, options traders are pricing in a big move for Rite Aid shares, but what is the fundamental picture for the company? Currently, Rite Aid is a Zacks Rank #4 (Sell) in the Retail - Pharmacies and Drug Stores industry that ranks in the bottom 7% of our Zacks Industry Rank. Over the last 60 days, no analysts have increased their earnings estimates for the current quarter, while 2 have dropped the estimate. The net effect has taken our Zacks Consensus Estimate for the current quarter from 4 cents per share to a loss of a penny per share in that period.

Given the way analysts feel about Rite Aid right now, this huge implied volatility could mean there’s a trade developing. Often times, 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.

Looking to Trade Options?

Each week, our very own Dave Bartosiak gives his top options trades. Check out his recent live analysis and options trade for the LULU earnings report completely free. See it here: Bartosiak: Trading Lululemon (LULU) Earnings with Options or check out the embed video below for more details: 


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