Investors in GameStop Corp. GME should pay close attention to the stock based on recent options market movements. Indeed, the $ 800.00 call on July 16, 2021 had one of the highest implied volatilities of any stock options today.
What is implied volatility?
Implied volatility shows the magnitude of movements expected by the market in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks expect significant movement one way or the other. It could also mean that an event is brewing soon and could cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when developing an options trading strategy.
What do analysts think?
Obviously, options traders are planning a big move for GameStop stocks, but what is the fundamental image of the company? Currently, GameStop is a Zacks Rank # 3 (Hold) in the Retail Industry – Consumer Electronics which ranks in the top 37% of our Zacks Industry Rankings. In the past 60 days, no analyst has increased their earnings estimates for the current quarter, while four have lowered their estimates. The net effect widened our Zacks consensus estimate for the current quarter, going from a loss of 41 cents per share to a loss of 56 cents during this period.
Considering what analysts think of GameStop right now, this huge implied volatility could mean a trade is growing. Often, options traders look for options with high levels of implied volatility to sell premiums. It is a strategy that many seasoned traders use because it captures the decomposition. Upon expiration, the hope for these traders is that the underlying stock does not move as much as initially expected.
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