The automated Quantcha Trade Ideas Service has detected a promising Short Risk Reversal trade opportunity for REYNOLDS AMERICAN (RAI) for the 17-Nov-2017 expiration period. You can analyze the opportunity in depth over at the Quantcha Options Search Engine.
RAI was recently trading at $66.60 and has an implied volatility of 8.46% for this period. Based on an analysis of the options available for RAI expiring on 17-Nov-2017, there is a 53.31% likelihood that the underlying will close within the analyzed range of $53.64-$66.60 at expiration. In this scenario, the average linear return for the trade would be 10.68%.
Price target: Zacks Research has updated their six-month price target for RAI to $59.60. This price target is a consensus price created from the price targets published by 10 participating analysts whose targets ranged from $52.00 to $67.00.
Mean recommendation: Zacks normalizes analyst recommendations to a 1-5 scale where 1 indicates a strong buy. Their mean recommendation for RAI has been updated to 2.8, which indicates a hold consensus from analysts. Sentiment has moved from 2.45 to 2.78 to 2.78 over the past three months.
Trade approach: The difference between the current price for RAI and the mean price target is $6.60, which represents a 10.50% move (22.45% annualized). Since the 180-day implied volatility for RAI is 11.74%, a bearish strategy could prove effective if the price target ultimately turns out to be accurate.
Upside potential: Using this bearish strategy, the trade would be profitable if REYNOLDS AMERICAN closed at or below $66.65 on 17-Nov-2017. Based on our analysis, there is a 54.09% likelihood of this return.
Downside risk: As with any options trade, there is a substantial downside risk where you may lose most or all of your investment.
To analyze this trade in depth, please visit the Quantcha Options Search Engine.
This is an automated post generated based on a market analysis of delayed data at 5/30/2017 11:21:33 AM ET. The analysis does not include brokerage fees or commissions and is not investment advice.