Implied Volatility Surging for Cara Therapeutics (CARA) Stock Options
Investors in Cara Therapeutics,
Inc. CARA need to pay close attention to the stock based
on moves in the options market lately. That is because the Jun 21,
2019 $30 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 Cara
Therapeutics shares, but what is the fundamental picture for the
company? Currently, Cara Therapeutics is a Zacks Rank #3 (Hold) in
the Medical – Biomedical and Genetics industry that ranks in the
Top 27% of our Zacks Industry Rank. Over the last 60 days, one
analyst has increased their earnings estimates for the current
quarter, while two have dropped their estimates. The net effect has
taken our Zacks Consensus Estimate for the current quarter from a
loss of 60 cents per share to a loss of 55 cents in that
period.
Given the way analysts feel about Cara Therapeutics 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.
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