3 Low Vol Trades I Like

Hey Traders,

With earnings season about to hit us full-force, you need to be paying attention to volatility now more than ever … especially if you want to avoid the dreaded post-earnings volatility crush, when all the pre-earnings hype is unceremoniously flushed out!

That is actually why I avoid holding my trades through earnings … because even if you’re right, your trade can go wrong!

However … when it comes to low vol options, there’s opportunities to be found …

You can get primo options pricing, and low implied volatility (IV) doesn’t mean that the stock isn’t going to make some moves.

Here’s 3 low-vol names and trades that I’m watching.

Bank of America Corp. (Ticker: BAC)

Bank of America Corp. (Ticker: BAC) reported earnings this week, and well, let’s just say things went well …

Chart courtesy StockCharts

Reporting a quarterly profit increase of 58% on Thursday, followed by a flurry of analyst price-target hikes today, BAC shares obliterated their previous all-time high of $41.44 … from 2007.

Yeah, BAC is having a good, good week.

However …

In spite of BAC’s big moves, implied volatility is at the lowest it’s been in over a year … in fact, it nearly hit a three-year low!

Premiums are cheap right now in BAC, even as the shares kick it into overdrive.

With BAC closing the week at $46.37, I find the November 47-strike calls quite interesting … especially being asked at only $1. Should BAC make a run to the next round-number mark of $50, those calls could pay off handsomely.

J.P. Morgan Chase & Co (Ticker: JPM) 

J.P. Morgan Chase & Co (Ticker: JPM) is a similar story to BAC …

Implied volatility on banks is CHEAP right now!

JPM’s chart isn’t quite as impressive as BAC, but after its better-than-expected earnings, the shares were quick to move higher.

Chart courtesy StockCharts

Headed into earnings, options premiums were higher than usual, and it looks like options traders were bearish, purchasing puts and selling calls … which, given how the shares looked ahead of earnings, wasn’t entirely unreasonable.

But now the stock is making a strong post-earnings move higher, while IV has been sucked out of options premiums.

The October 22 options term currently has low implied volatility being priced in. If JPM can carry its momentum into next week, there could be opportunities to take advantage of it with cheap near-the-money options.

Micron Technologies (Ticker: MU)

I have been eyeballing Micron Technologies (Ticker: MU) for a few days. The shares have been trending lower, dragged down by chip concerns, but I think it is about time to see a bounce.

Chart courtesy StockCharts

Analysts agree, with 12 of the 13 analysts covering MU rating saying they are “bullish” or “somewhat” bullish, and no bearish votes on the board. The average price target is over $97 — that’s a huge premium on the $67.68 price that MU closed at on Friday! 

And if you’ve been waiting to make a move on Micron, there arguably hasn’t been a better time to do so since 2011 …

That’s right, MU’s IV is currently at a 10 year low!

I see several ways to trade this name … a straight call-buy is definitely an option, but many times on a super-low IV stock like this, I’d opt for a straddle or a strangle. The November 70-strike calls and 65-strike puts is a play that has potential.

Your Only Option,

Mark Sebastian

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.