Sunoco LP (SUN) appeared on our list of compressed stocks this morning. SUN is a fuel distributor. The stock has a history of making big moves after compression signals. SUN also has an earnings report due before the November 15th options expire.

While the upcoming earnings report could be a potential catalyst for a big move in the stock price, previous earnings reports did not have as much of an impact as economic reports and news about the supply and demand of oil and gas.

From an option trader’s perspective, the volatility expectations of SUN have been pretty flat for this year. Share prices have gotten compressed and that tends to signal a breakout move in the next few weeks. Options are relatively inexpensive and the potential gains if the stock does make a breakout move could be substantial.

This Volatility Term Structure  chart for SUN shows that options expiring on November 15th have very low volatility expectations considering that there is an earnings report due before those options expire.

This MDM graph  compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of SUN’s share prices over the past year (the blue histogram). You can see that the actual stock price has made big moves more frequently in just the last year than current options prices expect.

This Volatility Cone  chart for SUN compares implied volatility expectations for each term to the historical volatility for that same term. The blue line shows the average historical volatility, the purple lines show each HV measure’s highest high and the lowest low over the past year. You can see that the two-month term (which is the term we are interested in) is nearer to the extremely low historical volatility. This confirms that volatility expectations and options prices are low relative to the stock’s history.

SUN share prices are compressed and options for November 15th expiration are priced relatively low given the stock’s history. While there is an earnings report due before the November 15th options expire, it is more likely that economic news about the supply and demand of fuel could be a catalyst for a big move in SUN share prices. The good news is that we have a lot of economic data due between now and November 15th.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea. 

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Thank you,

Don Fishback