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MARKETS LIVE BLOG:

STOCKS SLIP WITH MIDEAST TENSIONS, EARNINGS IN PLAY

Oil pares losses as traders anticipate Israel's response to Iranian attack

Is the Options Market Predicting a Spike in Darden Restaurants (DRI) Stock?

Zacks Equity Research
Updated

Investors in Darden Restaurants, Inc. DRI need to pay close attention to the stock based on moves in the options market lately. That is because the April 21st, 2017 $65 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 Darden Restaurants’ shares, but what is the fundamental picture for the company? Currently, Darden Restaurants is a Zacks Rank #2 (Buy) in the Retail - Restaurants industry that ranks in the Top 38% of our Zacks Industry Rank. Over the last 60 days, four analysts have increased earnings estimates for the current quarter, while another four analysts have revised the estimate downward. The net effect has taken our Zacks Consensus Estimate for the current quarter from $1.14 per share to $1.15 in that period.

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Given the way analysts feel about Darden Restaurants right now, this huge implied volatility could mean there’s a trade developing. Often times, 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 LULU earnings report completely free. See it here: Bartosiak: Trading Lululemon's (LULU) Earnings with Options or check out the embedded video below for more details:


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Zacks Investment Research