NOV Inc. (NOV)

NOV Inc. (NOV) appeared on our list of compressed stocks Friday, and as of last night’s close, the options are attractively priced. The company makesproducts to supportthe oil & gas drilling industry. The stock has a long history of making big moves shortly after a compression signal. Volatility expectations and options prices for the June 21st expiration are relatively low. This is an option buying situation. Our preferred method to take advantage of the situation is to use a neutral option buying strategy. You can see in the charts below that the direction of the big move after a signal seems to be unpredictable. With a neutral strategy, we don’t need to choose the direction of the breakout move to be profitable. That said, if you are confident in your ability to choose the direction of the next move, a directional trade has less risk and could be more profitable.

This MDM Graph compares the modeled expectations of current options prices (the orange line) to the actual distribution of stock prices over the last two years (the blue histogram). You can see in the chart that NOV made big moves more frequently than modeled options prices currently expect. This graph tells us that options prices are relatively low compared to modeled expectations.

The Volatility Cone compares implied volatility expectations (the yellow dots) to historical volatilities over the past 2 years. To learn more about the Volatility Cone, click here. Currently, volatility expectations for each term are below the 2-year average and are closer to the extreme historical low volatility. This chart confirms that options prices are relatively cheap.

The Volatility Term Structure shows that options expiring on June 21st have the lowest volatility expectations. To learn more about Volatility Term Structure, click here. This term has options that are cheap relative to other expirations.

NOV showed up on our list of compressed stocks.. Current volatility expectations and options prices are relatively low. This gives option buyers the advantage. Be sure to read the ODDS Online Daily Trade Idea report to get the details of our trade ideas for NOV.

To access Odds Online Daily, click here.

Thank you,

Don Fishback