Shaking up the Stock Market: The Implied Volatility Storm

This week marks a change of pace from the earnings-focused narrative of last week. Today, we will delve into the fascinating area of implied volatility (IV) and shed light on five stocks brewing a storm for the next week. Frequently, IV is addressed as it’s considerably convenient to track compared to price. Currently, it’s where the hidden treasures of trading setups for summer lie.

Hence, the highlight of the day is about shedding light on the five companies presenting significant volatility surges, along with a roadmap concerning prospective dealings.

Molina Healthcare MOH has been enduring severe stress. It was trading around the $360 mark in mid-March, but at present, it’s barely stabilizing near $180. That is equivalent to a 50% reduction. The majority of this slump happened after a substantial gap down earlier this month, when volatility began to gain traction. The IV took a leap from 37 to 65, an incredibly dramatic shift for a company in the healthcare domain. Were I to invest, I would look into selling premium, either through a credit spread or a naked option, depending on the degree of risk I’d want to take. However, buying options isn’t on the cards as their price is excessively high.

QuantumScape QS was recently a $4 stock, but it’s transitioned into hovering between $12 and $15, an obvious indication of skyrocketing volatility. Indeed, it has swollen twice its size within a month, moving from an IV of 60 to a whopping 140. It’s eased a bit since, although it’s still simmering. My strategy for a bullish approach would be to sell puts or put spreads. If my inclination were bearish, call spreads would seem to be a safer bet. Regardless of the approach, it’s key to leverage the inflated premium to your advantage.

Joby Aviation JOBY has been accelerating! It was floating around $5 in April, but now its place is around $18.22. The IV has spiked along with its price, jumping from 60 to 112. Earnings are expected on August 6, providing additional buffer time for the IV to ascend. If it aligns with one of my bullish patterns, I might opt for a put credit spread, but I will not object to thwarting it with a call spread if it starts to reverse. Yet again, the maneuver would be to sell premium.

Centene CNC has been a complete debacle. It was trading around the mid-$60s a few months back, but now it is barely managing to stay afloat at around $27.77. This is indicative of the chopping that has taken place over the past weeks. STEMIV rose from 30 to an all-time high of 86 following this dip, marking nearly three times its original status. In the event of a bearish setup, I’d be prone to selling call spreads. On the other hand, for a bullish stance, selling puts could be a sensible option provided the charts concur.

UnitedHealth UNH is keeping me on my toes. The stock plummeted from $600 in mid-April to $250 in mid-May. Although it’s managed to recover to around $284, it’s still significantly lower from its peak. Amid all this, IV surged from 30 to 74 and despite falling, it’s back in the high 40s now. This equates to the stock getting attention for all the wrong reasons, working in favor of the seller by keeping premiums pricey; an ideal scenario for selling options. If I remain bullish, I’d consider selling put spreads post earnings. However, if the scenario shifts to bearish, I’d adapt and explore call spreads. Undeniably, the premium provides flexibility.

In conclusion, all these stocks demonstrate a consistent trend: IV surges and inflated premiums anticipating substantial movements. Therefore, investing in options amidst such high volatility isn’t advisable. Rather, the strategic advantage is selling premium when the IV is high. If you observe a bullish or bearish setup that aligns with one of these charts, seize the opportunity. However, remember that high volatility isn’t permanent. So, ensure professional time management, understand your risk, and avoid exceeding the timeline of the trade.