Cobalt International Energy, Inc. (NYSE:$CIE) had some of the highest implied volatility of all equity options today coming from its December 15, 2017, $1.00 Put. But what does this mean?
Let’s break it down.
Implied volatility shows how much movement is expected in the market for the future. A high implied volatility would suggest that a big move in one direction or the other is expected for the stock it is connected to. High implied volatility may also suggest that an event is approaching that could cause a big rally or sell-off.
For Cobalt International Energy, this level of implied volatility might mean there’s a trade developing, so any options traders out there may use it as a chance to sell premium. When doing so, it captures decay. There is risk, however, that the underlying stock could end up moving as much as was originally expected – and moving in the way you don’t want it to.
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