Constellation Brands, Inc. (STZ), Trending Stock Report

Constellation Brands, Inc. (STZ) showed up on our list of compressed stocks this morning. STZ is a consumer staple that has a long history of making big moves soon after a compression signal. We can see on page 3 that the options for the September 20^th expiration give us 50 trading days of time for the stock to make a bigger-than-expected move at a relatively low cost.

In the charts below you can see the recent historical moves after a compression signal. The stock tends to make 1 or 2 standard deviation moves within 50 trading days after a signal. That is good for option buyers.

This Volatility Term Structure for STZ shows us the implied volatility of the at-the-money options for the September 20^th expiration will give us the most amount of time (50 trading days) for a low relative cost. To learn more about Volatility Term Structure, click here. Plus, the options for the September monthly expiration have better liquidity which should make it easier to get filled at the right price.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of STZ’s stock price over the past 2 years. You can see that the actual behavior (the blue histogram) shows us that STZ made big moves more frequently than the modeled options prices expect. This tells us that option buyers have the advantage if STZ continues to behave the way it did over the last 2 years.

This Volatility Cone shows us that the volatility expectations (the yellow dots) for each term are below the 2-year historical volatility average. To learn more about the Volatility Cone, click here. This confirms that STZ options are relatively inexpensive

STZ’s share prices are compressed. The stock has a history of making big moves after a compression signal. The options expiring on September 20^th are relatively cheap if the stock continues to behave the way that it has in the past 2 years. The options are really cheap if the stock continues to behave the way that it has after previous compression signals.

To get the details on today’s trades, be sure to read today’s ODDS Online Daily Option Trade Idea.