3 Options Trades on Volatile Stocks

Beta is the secret weapon behind these trading ideas

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3 Options Trades on Volatile Stocks

Beta is more than just a fraternity word or a phase in software or web development that happens before the official launch. In investing vernacular, it’s a way of measuring how volatile an individual stock is relative to the broader market.

With greater risk of volatility comes the potential for greater reward — if the market moves 3% higher, for example, a stock with a beta of 2.0 theoretically should advance 6%. But of course, this also is true if the market declines 3%. Ouch.

Beta can theoretically be positive or negative, too; if positive, the stock trends with the market and if negative, it trends against it. In other words, a stock with a beta of -2.0 would lose 6% when the broader market gains 3%, and vice versa.

Below is a screen of 10 optionable U.S. stocks that currently have the highest beta rankings. The list was filtered to exclude stocks that had an average daily volume below 1 million shares and/or an average market cap below 1 billion. Data is courtesy of Chris Johnson with Johnson Research Group. Some of the names are more familiar than others:

Ticker Company Price Beta Market Cap Volume
DAN Dana Holding Corp. $16.17 4.40 $2.4B 2.9M
PIR Pier 1 Imports $18.76 4.34 $2.06B 4.0M
MGM MGM Resorts International $13.93 3.65 $6.8B 9.9M
LVS Las Vegas Sands $58.69 3.61 $43.1B 6.6M
GGP General Growth Properties $16.74 3.54 $15.7B 3.0M
TRW TRW Automotive Holdings $47.12 3.43 $5.8B 1.6M
AIG American International Group $30.87 3.42 $58.6B 13.9M
CBL CBL & Associates Properties $19.09 3.34 $2.8B 1.5M
KOG Kodiak Oil & Gas $10.11 3.34 $2.7B 8.3M
TEN Tenneco $38.52 3.27 $2.3B 1.2M

Note that none of the names have negative beta. Currently the only securities with negative beta readings are two Treasury Bond ETFs and the Direxion Daily Financial Bear 3X Shares (NYSE:FAZ), which is designed with an inverse (and leveraged) relationship to the market. As such, its beta is currently 3.78.

So how can you use this information to your advantage? If you think the broader market’s rally still has legs, then chances are these high-beta stocks could continue to see some upside as well.

Here are three ways you could play them using bullish options strategies.

NEXT: 3 Trades to Make Now >>


Article printed from InvestorPlace Media, http://investorplace.com/2012/04/3-option-plays-on-volatile-stocks-lvs-pir-aig/.

©2014 InvestorPlace Media, LLC

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