Investors in DCP Midstream, LP need to pay close attention to the stock based on moves in the options market lately. That is because the Jul 17, 2020 $7.50 Call 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 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.
What do the Analysts Think?
Clearly, options traders are pricing in a big move for DCP Midstream shares, but what is the fundamental picture for the company? Currently, DCP Midstream is a Zacks Rank #2 (Buy) in the Oil and Gas - Production and Pipelines industry that ranks in the Top 31% of our Zacks Industry Rank. Over the last 30 days, two analysts have increased their earnings estimate for the current quarter, while one has dropped the estimate. The net effect has taken our Zacks Consensus Estimate for the current quarter from an earnings of 25 cents per share to an earnings of 39 cents in that period.
Given the way analysts feel about DCP Midstream 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.
Looking to Trade Options?
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.
Click to see the trades now >>
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Implied Volatility Surging for DCP Midstream (DCP) Stock Options
Investors in DCP Midstream, LP need to pay close attention to the stock based on moves in the options market lately. That is because the Jul 17, 2020 $7.50 Call 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 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.
What do the Analysts Think?
Clearly, options traders are pricing in a big move for DCP Midstream shares, but what is the fundamental picture for the company? Currently, DCP Midstream is a Zacks Rank #2 (Buy) in the Oil and Gas - Production and Pipelines industry that ranks in the Top 31% of our Zacks Industry Rank. Over the last 30 days, two analysts have increased their earnings estimate for the current quarter, while one has dropped the estimate. The net effect has taken our Zacks Consensus Estimate for the current quarter from an earnings of 25 cents per share to an earnings of 39 cents in that period.
Given the way analysts feel about DCP Midstream 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.
Looking to Trade Options?
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.
Click to see the trades now >>