Investors in
StoneCo Ltd.
STNE
need to pay close attention to the stock based on moves in the options market lately. That is because the Jan 20, 2023 $135 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 StoneCo shares, but what is the fundamental picture for the company? Currently, StoneCo is a Zacks Rank #2 (Buy) in the Internet – Software industry that ranks in the Top 21% of our Zacks Industry Rank. Over the last 30 days, one analyst has increased the earnings estimate for the current quarter, while none have revised their estimates downward. The net effect has taken our Zacks Consensus Estimate for the current quarter from 6 cents per share to 10 cents in that period.
Given the way analysts feel about StoneCo 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 >>
Special Report: The Top 5 IPOs for Your Portfolio
Today, you have a chance to get in on the ground floor of one of the best investment opportunities of the year. As the world continues to benefit from an ever-evolving internet, a handful of innovative tech companies are on the brink of reaping immense rewards – and you can put yourself in a position to cash in. One is set to disrupt the online communication industry. Brilliantly designed for creating online communities, this stock is poised to explode when made public. With the strength of our economy and record amounts of cash flooding into IPOs, you don’t want to miss this opportunity.
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
