Investors in Royal Caribbean Cruises Ltd. RCL need to pay close attention to the stock based on moves in the options market lately. That is because the Aug 21, 2020 $40.00 Put 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 Royal Caribbean shares, but what is the fundamental picture for the company? Currently, Royal Caribbean is a Zacks Rank #4 (Sell) in the Leisure and Recreation Services industry that ranks in the Bottom 7% of our Zacks Industry Rank. Over the last 60 days, no analyst has increased the earnings estimates for the current quarter, while six have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from a loss of $2.91 per share to a loss of $4.54 in that period.
Given the way analysts feel about Royal Caribbean 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.
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
Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.