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Is the Options Market Predicting a Spike in Southwestern Energy (SWN) Stock?

Zacks Equity Research
Updated
U.S. Health Insurers should gain from Medicaid Expansion that might be bought by Democratic control in the House of Representatives.

Investors in Southwestern Energy Company SWN need to pay close attention to the stock based on moves in the options market lately. That is because the Oct 12, 2018 $6.00 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 Southwestern Energy shares, but what is the fundamental picture for the company? Currently, Southwestern Energy is a Zacks Rank #3 (Hold) in the Oil and Gas - Exploration and Production - United States industry that ranks in the Bottom 39% of our Zacks Industry Rank. Over the last 60 days, nine analysts have increased their earnings estimates for the current quarter, while one has dropped estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from 17 cents per share to 20 cents in that period.

Given the way analysts feel about Southwestern Energy 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?

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's (NFLX) Earnings with Options or check out the embedded video below for more details:


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Zacks Investment Research