Volatility jumps despite trading range

  • STZ options IV up notably this week
  • Stock has been rangebound for nearly 3 weeks
  • Earnings scheduled for early October

Given the amount of information traders have to sift through on a daily basis, it’s understandable that many neglect to consult the options market for insights into the stocks they follow. Yesterday provided a fairly typical example of the potential advantages of keeping tabs on options, even if you’re not trading them.

On Thursday morning, Constellation Brands’ (STZ) implied volatility (IV) was up 45.4% from a week earlier:

Chart 1: LiveAction scan: Big one-week IV gain, 9/7/23. Unusual options activity. Options volatility jumped from last week

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

A high or rising 30-day IV reading suggests the options market expects a stock to experience more volatility in the next month or so—something that often happens when a stock sells off sharply. A big down move, especially when it occurs out of the blue, can rattle traders and investors, and prompt options traders to compensate by inflating options premiums.

Unlike many of the other symbols on yesterday’s scan, though, STZ stock has not made a big move recently. Quite the contrary—the stock has been stuck in a trading range for nearly three weeks:

Chart 2: Constellation Brands (STZ), 5/19/23–8/18/23. Constellation Brands (STZ) price chart. Rangebound despite high/rising IV.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Not only was STZ’s 30-day IV well above its 30-day historical volatility (HV), it was nearly as high as it had been on August 18 when the stock closed at its lowest level of the month. In other words, even though the STZ has been going nowhere lately, the options market appeared to be signaling it doesn’t expect that to continue indefinitely.

One possible reason: Constellation Brands is currently scheduled to release earnings on October 5. Implied volatility often climbs in the runup to an earnings announcement because of uncertainty about the outcome. And while some traders may buy options to trade their expectations of a stock’s earnings move, it’s important to remember that high IV can make options more expensive than they would be otherwise.

Market Mover Update: The oil rally took a little breather. On Thursday, October WTI crude oil futures (CLZ3) fell more than 1% intraday, and lost more than 10 cents in a day for the first time in more than two weeks. Dell (DELL) slipped on Thursday after closing at record highs two of the previous three days (see “Options traders active in stock’s AI rally”).

Today’s numbers include (all times ET): Preliminary Wholesale Inventories (10 a.m.), Consumer Credit (3 p.m.).

Today’s earnings include: Kroger (KR).


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