Those investing in Flotek Industries Inc. (FTK) have had to keep a close eye on the stock based on movement in the options market of late, due to high implied volatility.
Pending event
Implied volatility indicates the level of movement we can expect to see in the market in the future. An option with high implied volatility levels suggests that investors in those stocks can expect a big move. It could also signify a pending event that could result in either a big sell-off or significant rally.
While options traders are pricing in a high move for shares in Flotek Industries, there’s a more fundamental outlook for the company. Flotek is currently a Zacks Rank #5 (Strong Sell) in the Oil and Gas - Field Services industry that is ranking in the bottom 20 per cent in Nasdaq’s Zacks Industry Rank. Within the past two months (at time of writing), there has been no increase in earnings estimates from analysts for the current quarter. One analyst has even revised their estimate downward. This has seen Nasdaq take its Zacks Consensus Estimate from a 1 per cent per share loss in the current quarter to an 11 cents loss in that period.
Implied volatility a plus for advanced traders
Options are consistently one of the more popular routes for traders. Options trading has become more accessible as a result of online platforms such as Saxo providing a wealth of tools like combination order tickets and one-click trading. Traders can choose from numerous worldwide exchanges, with options roots covering agriculture, energy, equity indices and interest rates. While knowledge is an important factor in the success of trading options, more advanced traders look to situations such as implied volatility.
Judging by analysts’ current feelings about Flotek, this level of implied volatility could mean that a trade is developing. Options traders often seek out options with significant implied volatility to sell premium. This is an advanced strategy used by seasoned traders due to the fact that it captures decay. The traders hope that, at expiration, the underlying stock’s move isn’t at the level that was expected.
Stock gaining traction
The stock gained 4.48 per cent on August 17, closing at $2.10. On that same day, the company saw 1.34 million shares being traded over 4.478 trades. Judging by the fact that the stock has only averaged a 656,218 volume per day in the last month, this makes for a huge bump.
The stock has been trading between $6.77 and $2.01 over the past 52 weeks. Its 50-day SMA stands at $3.03, with its 200-day SMA at $3.03 and its 200-day SMA at $4.57. The company has a 0.62 P/B ratio.
Flotek Industries, Inc. manufactures and markets speciality chemicals and downhole equipment. The firm also designs, engineers, and constructs equipment for stimulation and cementing. Flotek serves both independent and major companies in the global oilfield service industry. Flotek’s HQ is located in Houston, Texas and employees 334 staff. John W. Chisholm is the current CEO.
