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Is the Options Market Predicting a Spike in SeaDrill (SDRL) Stock?

Zacks Equity Research
Updated
Does Zebra Technologies (ZBRA) have what it takes to be a top stock pick for momentum investors? Let's find out.

Investors in SeaDrill Limited SDRL need to pay close attention to the stock based on moves in the options market lately. That is because the Jan 19, 2018 $3.50 Put 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 SeaDrill shares, but what is the fundamental picture for the company? Currently, SeaDrill is a Zacks Rank #3 (Hold) in the Oil and Gas - Drilling industry that ranks in the Bottom 32% of our Zacks Industry Rank. Over the last 60 days, the Zacks Consensus Estimate for the current quarter has widened from a loss of 2 cents per share to a loss of 7 cents.

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Given the way analysts feel about SeaDrill 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.

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 NFLX earnings report completely free. See it here: Bartosiak: Trading Netflix's (NFLX) Earnings with Options or check out the embedded video below for more details:

 


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Seadrill Limited (SDRL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research