U.S. Markets close in 1 hr 22 mins

Are Options Traders Betting on a Big Move in Bonanza Creek Energy (BCEI) Stock?

Zacks Equity Research

Investors in shares of Bonanza Creek Energy Inc. BCEIneed to pay close attention to the stock based on moves in the options market lately. That is because the Putwhich expires onJan 19, 2018 for the $2.5strike 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 AK Steel Holding shares, but what is the fundamental picture for the company? Currently, Bonanza Creek Energy is a Zacks Rank #2 (Buy) in the Oils Energy that ranks in the top 12% of our Zacks Industry Rank. Over the last 30 days, no analysts have increased their earnings estimates for the current quarter, while 1 have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from loss of 26 cents to loss o 27 cents in that period.

Given the way analysts feel about Bonanza Creek Energy 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 NFLX earnings report completely free. See it here: Bartosiak: Trading Netflix (NFLX) Earnings with Optionsor check out the embed video below for more details:

 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Bonanza Creek Energy, Inc. (BCEI): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research