Investors in Wyndham Hotels and Resorts WH needs to pay close attention to the stock based on recent moves in the options market. Indeed, the August 19, 2022 call at $45.00 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 Wyndham Hotels and Resorts stocks, but what is the fundamental picture for the company? Currently, Wyndham Hotels and Resorts is a Zacks Rank #1 (Strong Buy) in the hotel and motel industry that ranks in the Top 18% of our Zacks Industry Rankings. In the past 30 days, two analysts raised their earnings estimates for the current quarter, while none lowered their estimates. The net effect pushed our Zacks consensus estimate for the current quarter from 94 cents per share to 96 cents during this period.
Given how analysts currently think of Wyndham Hotels and Resorts, 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.