Investors in Choice Hotels International, Inc. CHH needs to pay close attention to the stock based on recent moves in the options market. Indeed, the $75.00 call on September 16, 2022 had one of the highest implied volatilities of any stock option today.
What is implied volatility?
Implied volatility shows the magnitude of the movements expected by the market 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 that there is an upcoming event that could cause a big rally or a huge sale. However, implied volatility is only one piece of the puzzle when developing an options trading strategy.
What do analysts think?
Clearly, options traders are pricing in a big move for Choice Hotels stock, but what is the fundamental picture for the company? Currently, Choice Hotels is a Zacks #2 (buy) ranking in the hotel and motel industry that ranks in the top 14% of our Zacks Industry Rankings. Over the past 30 days, one analyst raised earnings estimates for the current quarter, while none revised their estimates lower. The net effect moved our Zacks consensus estimate for the current quarter from $1.43 per share to $1.42 for this period.
Given what analysts think of Choice Hotels right now, this huge implied volatility could mean a trade is developing. Often options traders look for options with high levels of implied volatility to sell at premiums. This is a strategy that many seasoned traders use because it captures the breakdown. At expiration, the hope of these traders is that the underlying stock does not move as much as originally expected.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.