While earnings season is over, it won't be long before it comes around again. During this break in the action, it's a good time to review some basics about how implied volatility (IV) impacts option prices. IV plays a key role in determining the price you pay to buy an option, so it's critical to keep entry costs at a minimum in order to take full advantage of the leverage provided by options. To pinpoint stocks with attractively priced options, we've developed two proprietary volatility-based indicators: Schaeffer's Volatility Index (SVI) and Schaeffer's Volatility Scorecard (SVS).

Finding Cheap Short-Term Options with SVI
The Schaeffer's Volatility Index (SVI) is the average at-the-money (ATM) implied volatility of a stock's front-month options. The indicator is helpful to determine whether short-term options are currently pricing in high or low volatility expectations, relative to the past year's worth of data.

SVI is calculated by averaging the IV of four different options -- two calls and two puts, both in the front-month series (until the week prior to expiration, when it rolls to the next available month). Two strike prices are used; the strikes immediately above and below the stock price. The resulting average IV reading is the SVI, which is then assigned an annual percentile rank (with 0% being the lowest, and 100% the highest).

The higher the SVI percentile, the higher short-term volatility expectations are at the moment. Thus, options traders should ideally target stocks with low SVI percentile rankings, because this means near-term options are pricing in relatively low volatility expectations. Given that volatility tends to spike as known events approach, equity SVIs are usually highest prior to earnings releases.

By avoiding options with inflated SVI readings, and honing in on those with low SVIs, premium buyers can keep their cost of entry low, minimize the negative impact of time decay, and maximize the leverage of options.

Using SVS to Find Stocks That Defy Expectations

Unlike the forward-looking SVI, the Schaeffer's Volatility Scorecard (SVS) is a lagging indicator that measures a stock's realized volatility against the volatility expectations priced into that stock's options over the past year. The goal is to find which stocks have been the best -- and worst -- for premium buyers.

SVS is calculated by creating a hypothetical at-the-money straddle trade with a constant 21 days until expiration each trading day of the year, generating about 250 data points annually, with IVs derived from actual at-the-money options. The hypothetical straddle is assumed to be held until expiration, when it's closed out for intrinsic value. Based on these trades, the SVS accounts for three criteria: 40% is based on the average straddle return; 40% is based on the percentage of positive returns; and 20% is based on the percentage rank of the straddle IVs. These metrics are then combined into a score ranging from zero to 100.

If a stock has a high SVS, the underlying equity has tended to realize greater volatility on the charts over the past 12 months than what its options have priced in. The SVS then, unlike SVI, accounts for not just IV relative to itself, but IV relative to historical volatility (HV). 

As we work to uncover winning call and put trades for subscribers, both the SVI and SVS are critical tools we use to determine prime option-buying opportunities. To learn more about identifying options trades with appealing risk-reward setups, check out these tips, and find out how to use leverage ratios.

Welcome back to our weekly series, Schaeffer's Cannabis Stock News Update, where we recap what happened in the world of marijuana stocks and look ahead to how the cannabis industry continues to shape up in 2021.

Investor interest in the cannabis industry is growing at an explosive rate, and the leading players continue to break through legal barrier after legal barrier, especially in the United States. More than 40 U.S. states legalized recreational and/or medical marijuana by the end of 2020. Now, companies are starting to see the opportunity in cannabis cultivation, marketing, distribution, and technology.

Here is a quick roundup of major (and action-worthy!) cannabis stock news from this week:

Welcome back to our weekly series, Schaeffer's Cannabis Stock News Update, where we recap what happened in the world of marijuana stocks and look ahead to how the cannabis industry continues to shape up in 2021.

Investor interest in the cannabis industry is growing at an explosive rate, and the leading players continue to break through legal barrier after legal barrier, especially in the United States. More than 40 U.S. states legalized recreational and/or medical marijuana by the end of 2020. Now, companies are starting to see the opportunity in cannabis cultivation, marketing, distribution, and technology.

Here is a quick roundup of major (and action-worthy!) cannabis stock news from this week:

It has been a rocky year for Amicus Therapeutics, Inc. (NASDAQ:FOLD), after the stock suffered a dramatic bear gap back in February that it hasn't even come close to recovering from. In recent months, the equity has come up against pressure at the $12 mark, which has kept it at a 52.4% deficit for the year. FOLD is down 1.4% at $10.92 at last check, and has just pulled back to a historically bullish trendline that could have the equity making another attempt at the aforementioned $12 level. 

The trendline in question is FOLD's 40-day moving average. Data from Schaeffer's Senior Quantitative Analyst Rocky White shows the equity coming within one standard deviation of this moving average after some time above it. Similar moves have occurred seven other times in the past three years. One month after each of these signals, Amicus Therapeutics stock was higher 50% of the time, averaging a 5.2% return during that time frame. A similar move from the stock's current perch would put FOLD at $11.48, back within striking distance of that $12 ceiling. 

Amicus Therapeutics is only a couple weeks away from its earnings call, which is due out before the open on Wednesday, Nov. 3. Looking back at its last eight reports, the equity hasn't made any outsized post-earnings moves, averaging a next-day swing of just 3%, regardless of direction. Over these past eight reports, FOLD saw positive next-day returns 37.5% of the time 

Short interest, meanwhile, has been on the decline, dropping 3.7% in the last two reporting periods. The 26.88 million shares sold short still make up 11.1% of the stock's available float, however, and it would take over 13 days to buy back these bearish bets, at FOLD's average daily pace of trading. Should short interest continue to unwind, the shares could surge higher still.

Analysts are split on the equity. Of the 11 in coverage, six say "strong buy," and five say "hold." Meanwhile, the 12-month consensus price target of $16.89 is a 54.4% premium to current levels. 

Now looks like an advantageous time to speculate on FOLD's next move with options. The security's Schaeffer's Volatility Index (SVI) of 51% stands higher than just 4% of readings from the past 12 months. This means options traders are pricing in relatively low volatility expectations at the moment. 

The shares of NetApp Inc. (NASDAQ:NTAP) are down 3.6% at $91.01 this morning, following a downgrade from Goldman Sachs. The analyst lowered its rating on NTAP to "sell" from "neutral," and slashed its price target to $81 from $85, citing the upcoming 2022 spending environment. 

This downgrade may come as a surprise to some, considering NetApp stock just hit a record high of $94.69, and has been charging up the charts for most of 2021. In fact, NTAP has added 42.5% this year, and has doubled in the past 12 month, while several channels of support still sit just below, including the 40-day moving average, which captured two pullbacks earlier this month, 

The majority of analysts in coverage are optimistic on NTAP, with nine of the 16 considering it a "buy" or better, heading into today. The remaining seven considered the stock a "hold." Meanwhile, the 12-month consensus price target of $95.32 is a slim 1.3% premium to last night's close. 

Options traders have also taken an optimistic stance. The equity's Schaeffer's put/call open interest ratio (SOIR) stands higher than just 1% of reading from the past year. This means short-term options traders have rarely been more put-biased. 

That being said, now could be a good time to speculate on NetApp stock's next move with options. The security's Schaeffer's Volatility Index (SVI) of 24% stands higher than just 12% of readings from the past year. This implies options traders are pricing in relatively low volatility expectations at the moment. 

The shares of FuelCell Energy Inc (NASDAQ:FCEL) are popping this morning, last seen up 12.2% at $8.29. It's unclear what's driving the equity up the charts this early on, though there's a lot of online chatter surrounding the speculative trader target. FuelCell stock was at the forefront of the meme stock craze, preceding the uptick in interest of GameStop (GME) amongst Reddit's WallStreetBets crowd, and it looks like some well-known accounts on Twitter are drumming up interest once again.

A far cry from its Feb. 10 all-time high of $29.43, as the stock has been consolidating below the $8 level since July. The security looks ready to topple this area today, however. Plus, FCEL is pacing for its first close above its 120-day moving average since April. Year-over-year FCEL boasts a 271.4% lead.

As is typical with these meme stocks, short interest is an area of particular interest. It has been on the rise over the last month, up 10%, and the 52.88 million shares sold short now make up a healthy 15% of the stock's available float. In simpler terms, it would take these traders just over two days to buy back their bearish bets, at the equity's average pace of trading. 

Options bulls are targeting FCEL today, too. Already, 207,000 calls have crossed the tape, which is 11 times what's typically seen at this point, compared to the 23,000 puts exchanged so far. The three most popular contracts, the weekly 10/22 8-, 9-, and 8.50-strike calls all have new positions being bought to open at each. 

That bullish sentiment is nothing new, given that options traders have been call-heavy on the equity over the last two weeks. This is per the security's 10-day call/put volume ratio of 9.74 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 92% of readings from the past year.  

Now could be a good opportunity to take advantage of FCEL's next move with options. The stock's Schaeffer's Volatility Index (SVI) of 91% sits in the 7th percentile of its annual range, indicating that options traders are pricing in relatively low volatility expectations at the moment. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) comes in at 99 (out of 100). In other words, the security has exceeded options traders' volatility expectations in the last year.