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Investors in Mohawk Industries, Inc. (MHK – Free report) should pay close attention to the stock based on recent movements in the options market. Indeed, the November 18, 2022 call at $65.00 had one of the highest implied volatilities of any stock option today.
What is implied volatility?
Implied volatility shows the magnitude of the movements the market expects in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean that there is an upcoming event that could cause a big rally or a huge sale. However, implied volatility is only one piece of the puzzle when developing an options trading strategy.
What do analysts think?
Clearly, options traders are pricing a big move for Mohawk Industries stock, but what is the fundamental picture for the company? Currently, Mohawk Industries is a #5 Zacks Ranking (High Selling) in the Textiles – Home Furnishings industry that ranks in the bottom 1% of our Zacks Industry Rankings. In the last 60 days, no analyst raised their earnings estimate for the current quarter, while one analyst revised the estimate lower. The net effect lifted our Zacks consensus estimate for the current quarter from $3.39 per share to $3.46 for this period.
Given how analysts currently think of Mohawk Industries, this huge implied volatility could mean a trade is developing. Often options traders look for options with high levels of implied volatility to sell at premiums. This is a strategy that many seasoned traders use because it captures the breakdown. At expiration, the hope of these traders is that the underlying stock does not move as much as originally expected.
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