When there are no good Options

The Stock RCL, Royal Caribbean Cruises LTD, reached a support this morning during trading hours based on a prior researched alert.  This stock is still quite bullish in the longer term Quarterly and Monthly timeframes and apparently the Market Makers for options are pricing this in as such.

Our scanners at Ichimokutrade.com register the average Implied Volatility at 40%.  As you can see in the image below the June 16 and January 17 Options in the chain are all below average.  However, the options remain excessively high priced.  Earnings are coming up next week which can be a cause for higher IV and thus Option pricing but look at the moves these Options are “implying”.

 

RCL Options 1-28-2016

  • A 5 month move of $16.50/share would represent a 22% move in the stock
  • An 11 month move of $25.28/share would represent a 33% move in the stock

If we assume that the average earnings movement is 3-5%, and even consider 2 earnings announcements and 3 earnings announcements respectively, it seems very unlikely that an earnings jump would allow us to get a proper reward based on the risk priced into these Options.

 

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About the Author Maneshkumar Patel