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Is the Options Market Predicting a Spike in Merrimack (MACK) Stock?

Zacks

Investors in shares of Merrimack Pharmaceuticals, Inc. MACK need to pay close attention to the stock based on moves in the options market lately. That is because the Call which expires on Jan 20, 2017 for the $4.00 strike price 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 could mean 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 could 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 Merrimack shares, but what is the fundamental picture for the company? Currently, Merrimack is a Zacks Rank #2 (Buy) in the Medical – Biomedical and Genetics industry that ranks in the top 25% of our Zacks Industry Rank. Over the last 60 days, the Zacks Consensus Estimate for the current quarter has narrowed from a loss of 25 cents per share to a loss of 22 cents per share.

Given the way analysts feel about Merrimack 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 MU earnings report completely free. See it here: Bartosiak: Trading Micron's (MU) Earnings with Options or check out the embed video below for more details:


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To read this article on Zacks.com click here.

Zacks Investment Research
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