Shares of Microchip Technology Inc. (NASDAQ:MCHP) certainly haven't missed out on the broader rally in semiconductor stocks over the past year. In fact, MCHP sports a year-over-year lead of 56%, including a nearly 27% gain in 2017. While the stock has pulled back from its record highs during the recent tech-sector retreat, it's found solid support from its 40-day moving average.

Microchip Technology's upside potential looks even better when you consider a large batch of June 85 calls just expired. Other options data adds to MCHP's bullish prospects, as well. For example, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.65 ranks in the high 82nd annual percentile. This suggests short-term options traders have been more attracted to puts than normal, and a regression to the norm could result in tailwinds for the shares.

It's also a good time to target near-term options on Microchip Technology. This is according to the stock's Schaeffer's Volatility Index (SVI) of 23%, which happens to land in the low 23rd annual percentile. This indicates low volatility expectations are price into short-term options. Additionally, our recommended call option has a leverage ratio of 6.7, and will double in value on a 14.2% gain in the underlying shares.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this MCHP commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

Analysts are weighing in on fast-casual restaurant chain Chipotle Mexican Grill, Inc. (NYSE:CMG), blue-chip athletic retailer Nike Inc (NYSE:NKE), and drug stock Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Here's a quick roundup of today's bearish brokerage notes on shares of CMG, NKE, and VRX.

CMG Stock Lower After Guidance, Price-Target Cut

Late yesterday, Chipotle Mexican Grill said it expects second-quarter operating costs to be at or slightly higher than the previous quarter, due to higher promotion and marketing costs. In response, Instinet lowered its price target to $480 from $510. CMG stock has shed 5.75% to trade at $432.52, putting them on pace for their lowest close since March 29, and their first below the 100-day moving average since March 20.

Meanwhile, it's not a bad time to pick up options on Chipotle. This is according to the stock's Schaeffer's Volatility Index (SVI) of 25%, which ranks in the low 18th annual percentile. In other words, low volatility expectations are being priced into near-term options. 

Nike Stock Lower Once Again

While the Dow settled last week in the black, Nike stock ended in the red, gapping lower after the firm announced job cuts. Now, Cowen is lowering its price target to $53 from $54. NKE shares are down another 0.8% today at $51.71, putting them just above their year-to-date breakeven level. Wall Street is split on Nike stock. By the numbers, 14 brokerages have "strong buy" opinions, and 14 others have "hold" or "sell" ratings. 

VRX Stock Taking On 160-Day Moving Average

Valeant Pharmaceuticals stock edged higher yesterday, as traders celebrated a new board member. Late yesterday, the company also announced that Arthur Shannon will serve as senior vice president and head of investor relations. Still, Mizuho Securities reiterated its "underperform" rating and $8 price target on VRX stock (subscription required). Valeant was last seen 2% lower at $13.18, as it remains well below its 52-week high of $32.75 from August 24. More recently, the shares have struggled to overcome their 160-day moving average. Options traders are certainly bullish. VRX has a 10-day call/put volume ratio of 3.50 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which tops 96% of readings from the past year. 

U.S. stocks are trading slightly lower this morning, after a strong performance yesterday. Among specific names on the move today are homebuilder Lennar Corporation (NYSE:LEN), satellite radio stock Sirius XM Holdings Inc. (NASDAQ:SIRI), and drugmaker Lipocine Inc (NASDAQ:LPCN). Here's a quick look at what's moving shares of LEN, SIRI, and LPCN.

Lennar Stock Jumps After Strong Profit and Guidance

Lennar stock is up 5% to trade at $55.23 -- near a new two-year high -- after the company's earnings report exceeded analysts' expectations. Today's rally is just more of the same for the homebuilder stock, which is up 28% year-to-date, and hit its previous annual high of $54.84 as recently as June 14. Since late 2016, the shares have been guided higher by their 50-day and 80-day moving averages.

Given the strong price action, it's no surprise to see analysts are upbeat on Lennar. Of the 12 brokerages covering LEN stock, seven rate it a "strong buy" or "buy."

Sirius XM Loses Pre-Market Momentum on Alexa News

Sirius XM stock is flat today at $5.24, with the stock unable to hold its pre-market gains following news that Alexa, Amazon's digital personal assistant, can now stream over 200 channels of SiriusXM satellite radio. SIRI stock has gained 18% year-to-date, but has lost some momentum since double-topping around $5.50 at the beginning of June. The stock's ensuing pullback has so far been supported by its 80-day moving average.

The options market isn't pricing in any big moves for Sirius stock anytime soon. SIRI has a Schaeffer's Volatility Index (SVI) of 22%, which ranks in the 7th annual percentile. This indicates that short-term options are pricing in significantly lower-than-usual volatility expectations.  

Lipocine Quickly Pares Post-Study Stock Gains

Lipocine stock is up 7.4% to trade at $4.32, after the company reported positive top-line results for LPCN 1021, its testosterone drug. Right out of the gate, LPCN rallied to an eight-month high of $5.14 -- near the site of its descending 320-day moving average -- but the stock has since pared those early gains considerably. This suggests the $4.50 level, site of the equity's year-to-date closing high, will continue to act as a technical ceiling.

Based on LPCN stock's rapid retreat from its morning highs today, it seems as though the shorts are firmly in control of this name. Short interest rose by 9% in the most recent reporting period to account for 13.3% of the security's float, or 10.8 times LPCN's average daily trading volume.

Legislators have already voted to roll back a tax exemption for state-run individual retirement accounts (IRAs), which could hamper the ability of small businesses to provide workplace retirement plans for employees. Additionally, there's lingering speculation that Congress could fund the Trump administration's proposed personal and corporate tax breaks by rescinding the tax-exempt status of 401(k) contributions, which could put your savings at risk.

With the often-unpredictable day-to-day swings in the stock market, it's understandable to feel like you're not 100% in control of your retirement savings. And now, with lawmakers debating the merits of your 401(k) tax incentives, it's almost as though you've been relegated to a sideline player in planning your own future.

But we've got one simple way to take back control and start getting proactive with your retirement fund: Options. By using two very basic options trading strategies -- call buying and put buying -- you can take control of your post-employment destiny, and use the power of leverage to start padding your nest egg.

Below, we'll review the basics of both methods, and explain your options for continuing to build toward a confident future.

Buy Call Options to Bet on Long-Term Gains

Buying a call option is tantamount to gaining control of 100 shares of the underlying stock, but for a fraction of the share price. Essentially, a call option guarantees the buyer the right (but not the obligation) to buy 100 shares of the underlying stock at a predetermined price (known as the "strike price"), should the shares be trading at or above that price by the time the option expires. That said, most options traders never even touch the underlying shares; instead, they simply sell to close their options contracts after they've appreciated in value.

Call options are available on a huge number of stocks and exchange-traded products, with the list of optionable assets likely to include pretty much all of the big names and popular sectors represented among your retirement investments. Options are listed at a variety of strike prices and expiration dates for each security, allowing you to tailor your call option trade to your specific forecast for the duration and magnitude of the expected uptrend in the underlying shares.

The advantage to augmenting your retirement strategy with call options is primarily one of leverage. Simply put, you stand to gain many times more than your original investment, with a profit potential far greater than that of an equivalent stock trade. And because option contracts are priced at a fraction of the expense of purchasing the shares outright, you're risking fewer dollars with each trade (and keeping more of your investing capital available for other pursuits).

What's more, when you buy a call option, your initial investment doubles as your maximum potential loss. Even if the share price should crater all the way to zero, the most you can lose is the premium you paid upfront to buy the contract(s).

Depending upon your risk appetite and your proximity to retirement age, the way you trade call options in your retirement account may vary. Those with a more aggressive mindset might choose to use call options in a speculative manner -- namely, buying short- or intermediate-term calls to bet on big rallies in stocks that appear primed for upside, but that you might not want to commit to holding over the longer haul.

Those who are taking a more conservative approach with their retirement savings might prefer a stock-replacement strategy. This method involves the purchase of long-term call options in lieu of buying shares, as a means of participating in a stock's uptrend without committing the same amount of capital as a stock trade would require (and with a lower degree of susceptibility to time decay, relative to shorter-term options trades).

The stock-replacement strategy is particularly appealing during times of heightened uncertainty in the equities market, as it offers investors a way to take part in stock gains without placing too many dollars at risk. And with options available up to two or three years out, this type of options trade is one that can be left to develop over time, without requiring intense, active management. That said, open positions can be "rolled out" to later expirations if the underlying security is not moving significantly in your direction.    

And for every type of retirement saver, call options provide a low-cost method of adding diversity to your portfolio. Whether your goal is speculation or stock replacement, options allow you to quickly and simply add exposure to any area -- big-cap tech, healthcare, emerging markets, etc. -- where you feel your investment approach might be lacking.

For those new to call options, it's worth noting that call buyers are not eligible for the same dividend payouts as traditional shareholders. This is a caveat worth keeping in mind as you consider which stocks might be better candidates for options trades than stock investments, and vice versa.

2 Ways Put Options Can Protect Your Retirement

As you may already be aware, most retirement accounts prohibit investment strategies that require a margin account. That means you can't sell stocks short -- a restriction that could leave your retirement account vulnerable to heavy losses during times of market turmoil.

However, buying a put option allows you to profit from bearish price action in an individual stock, sector, or index. It's essentially the mirror image of a call option -- when you buy a put, you've gained the right (but not the obligation) to sell 100 shares of the underlying stock at the strike price, if it should fall below the strike prior to its expiration date. And just like a call option, you can sell to close a profitable put option position without ever touching the underlying stock.

Also similar to calls, buying puts involves a greatly reduced upfront investment, and it also inherently limits your dollars at risk to the initial premium paid. By contrast, shorting a stock involves theoretically unlimited risk.

With short-selling off the table for 401(k) and IRA investors, put options are an incredibly valuable tool, because you can add directional diversity to your investments. Buying a put option on an individual stock, a broader sector, or a wide-ranging index means that at least one of your retirement investments will actually benefit from the kind of negative price action that leaves most long-term savers reaching for the Rolaids. And you can do so without trying to wrap your head around the logistics of investing in a triple-leveraged inverse bearish ETF (which, incidentally, are among the worst vehicles to buy and hold).

In addition to broadening your scope to include bearish plays, put options also allow you to hedge your long positions. If your portfolio includes significant bullish exposure to U.S.-based drugmakers, for example, you could purchase put options on a pharmaceutical ETF that includes those names among its top holdings. So while you won't necessarily cheer a potential decline in this sector, the protective put option will effectively limit your downside (and, depending on the exact structure of your hedge and the degree of the downside move, possibly even offset some of your paper losses).

And as with calls, put options can be purchased over a wide span of time frames, allowing you to tailor each trade -- whether speculative or protective -- to the needs of your unique retirement portfolio.

Ready to Get Started?

If you're ready to get proactive with your retirement goals, supplementing your investments with strategically implemented calls and puts is a simple, yet sophisticated, way to raise your game. But before you get started, get educated!

We have an extensive library of options education material to help answer all of your questions about calls, puts, and more. And to learn more about how options trading can raise your retirement-planning game, just drop us a line.

A Word on Money Management

We're not a broker -- but at Schaeffer's, we typically recommend that only a small portion (perhaps 10%) of your available capital be used for options trading. Options shouldn't be the primary focus; instead, they should be one asset among many in your portfolio (alongside stocks, bonds, and cash). This helps to insulate your investments from potential weakness in any one asset class, sector, or trade.

This same rule naturally applies to retirement accounts, as well. Allocate only a modest portion of your savings to these strategies, relative to the size of your overall account.

Finally, we encourage you to start a conversation with your broker or investment advisor to see how options trading fits into your overall retirement strategy.

Analysts are weighing in on biopharmaceutical firm Ocular Therapeutix Inc (NASDAQ:OCUL), retail chain Bed Bath & Beyond Inc. (NASDAQ:BBBY), and construction equipment concern Caterpillar Inc. (NYSE:CAT). Here's a quick look at today's bearish brokerage notes on shares of OCUL, BBBY, and CAT.

OCUL Backs Down from Resistance on Morgan Stanley Downgrade

Morgan Stanley slashed its rating on OCUL to "equal weight" from "overweight," just one day after Ocular detailed its executive transition plan. OCUL stock is on track to open lower today, backing down from resistance at the $11.50 level -- which was taken out on a daily closing basis, at Thursday's close of $11.54, for the first time in over a year. Meanwhile, support from the security's 40-day moving average is rising through the round $10 level.

OCUL shares have been a favorite target of short sellers, with nearly 27% of the stock's float dedicated to short interest. This figure is down more than 18% from the last reporting period -- but with Ocular Therapeutix stock now backing down from solid chart resistance, shorts could grow bolder and once again ramp up their bets against the drug company.

Price-Target Cuts Pour In After BBBY Earnings

Following last night's bleak first-quarter earnings report, BBBY has been hit with price-target cuts from at least nine brokerage firms this morning. KeyBanc's downwardly revised target of $27 stands out as the lowest, implying expected downside of roughly 20% from Thursday's close at $33.74, while Barclays reduced its price forecast to a comparatively upbeat $40.

BBBY stock is off more than 10% in pre-market trading, on pace for a drop back toward its May 2010 "flash crash" lows. Given the security's steep downtrend below pressure at its 20-week moving average, it's not particularly surprising to find that not a single one of the 14 analysts tracking Bed Bath & Beyond calls it a "buy."

Deutsche Bank Rethinks Bullish CAT Rating

CAT was hit with a downgrade to "hold" from "buy" at Deutsche Bank, with the brokerage firm simultaneously reducing its price target to $106 from $121. That represents a modest 2% premium to the Dow component's Thursday close at $103.84. Caterpillar stock has slipped 1.1% ahead of the open, putting the shares at risk of a daily finish below their 40-day moving average for the first time in over two months.

At its highs north of $108 earlier this month, CAT had nearly doubled from its January 2016 low -- but most analysts are skeptical of the stock's ability to continue its impressive uptrend. Currently, 61% of brokerage firms rank Caterpillar a "hold" or "strong sell."

Analysts are weighing in on steel stock AK Steel Holding Corporation (NYSE:AKS), drugmaker Biogen Inc (NASDAQ:BIIB), and coffee concern Starbucks Corporation (NASDAQ:SBUX). Here's a quick roundup of today's bullish brokerage notes on shares of AKS, BIIB, and SBUX.

AK Steel Stock Upgraded to "Buy"

AKS stock is pointed 3.5% higher ahead of the bell, courtesy of an upgrade to "buy" from "hold" at Deutsche Bank. Since hitting a near-term low of $5.30 in mid-May, the shares of AK Steel have muscled nearly 19% higher, breaking north of a channel of lower highs and lows in place since the early December peak. In the past two weeks, options buyers have upped the bullish ante in a big way on AKS, as evidenced by the stock's 10-day call/put volume ratio of 49.75 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is higher than 99% of all others from the past year, demonstrating a much healthier-than-usual appetite for long calls over puts of late.

BIIB Burst Could Please Options Traders

Biogen stock is pointed 1% higher in pre-market trading, after Deutsche Bank initiated coverage with a "buy" endorsement and $318 price target. In addition, a European Medicines Agency committee recommended approval of Biogen's Imraldi drug. BIIB stock has rocketed more than 13% higher in just the past month, and yesterday ended atop its 200-day moving average for the first time since late April. This is likely much to the delight of recent options buyers, as Biogen stock sports a 10-day ISE/CBOE/PHLX call/put volume ratio of 3.96 -- in the 99th percentile of its annual range.

SBUX Stock Gets Another Bull Note

Shares of Starbucks are up 0.6% ahead of the open, after KeyBank started coverage with an "overweight" assessment, citing a strong earnings and revenue outlook. After rallying to a record high of $64.87 back on June 5, SBUX stock has pulled back, closing last night at $59.51. However, Starbucks could now find support from its rising 80-day moving average. Most analysts are already bullish on Starbucks stock, with 16 of 19 rating it a "buy" or "strong buy." Meanwhile, the shares have an average 12-month price target of $66.57 -- in uncharted territory.

One of the major attractions of options trading is the ability to turn a very healthy profit in a relatively brief period of time. Thanks to the profit-magnifying power of leverage, well-timed call and put plays can quickly yield triple-digit returns for the shrewd speculator. Of course, if you dive into an options position unprepared, you might just as quickly forfeit your upfront investment. To stack the odds in your favor with rapid-turnaround trades, simply follow these 5 simple steps to short-term profits.

1.) Target stocks poised for a big move.

This may seem obvious -- but if you're attempting a short-term options trade, you need to focus on a stock that has a history of making big moves in a narrow time frame. This is the kind of information you can glean by reviewing a stock's chart, and by looking up its historical volatility (HV). Simply put, a high HV reading suggests that dramatic price swings are business as usual.

There are also technical indicators you can reference to inform your short-term trading decisions. For example, Bollinger Bands are a pair of trendlines typically plotted two standard deviations away from a central moving average (most frequently, the 20-day moving average). During periods of heightened volatility, the upper and lower Bollinger Bands will move away from each other. Then, during times of low volatility, the bands will draw closer together. By singling out a historically volatile stock with compressed Bollinger Bands, you may be able to pinpoint opportunities where volatility is on the verge of exploding.

And, as always, be aware of upcoming corporate events. Product launches, earnings reports, and other planned events all have the ability to prompt a major move in the shares.

2.) Check the charts for key support and resistance levels.

When you're targeting major gains in a minor time period, it makes sense to be aware of any and all levels of technical significance that could impact your trade. Even though you're focused on the short term, go ahead and dial back the charts to uncover any long-term technical foes that could exert an immediate impact on the share price.

A thorough technical analysis along these lines might include a check of: major trendlines and moving averages; round numbers; previous highs and lows; double lows and half-highs; Fibonacci retracements of previous directional moves; and "round-number returns" (i.e., gains and losses of 10%, 20%, and so forth) from recent highs and lows, as well as the stock's year-to-date breakeven. Pay especially careful attention to any of these levels that are located in between the stock's current price and your projected target.

3.) Make sure there aren't major volatility expectations priced in already.

No matter how abbreviated your trading time frame might be, it's an essential rule of money management that you should avoid overpaying for options. The price you pay to play is a key determining factor in your risk/reward profile, and it also determines how much leverage you stand to gain.

Implied volatility reflects the market's expectations for the underlying stock during an option's lifespan, and it's one of the key variables that impacts option premiums. So, if most traders expect Apple shares to make a big move on the charts during the next month, AAPL's front-month option prices will rise accordingly. This is why options with an expiration date timed to coincide with a planned event -- such as an earnings report, or the release of an updated iPhone model -- are often costlier than their "anytime" counterparts.

But as the market's reaction to these types of known events is priced directly into the shares, rather than the options, implied volatility will collapse. And if the directional move in the stock doesn't live up to expectations -- even if it's heading in the right direction -- options can actually lose value.

4.) Select your option carefully.

When your trading time frame is measured in hours and days (instead of weeks and months), it's important to calibrate your option selection very deliberately. Your two primary considerations are time and strike price. For short-term trading, it makes sense to buy as little time premium as you require for the expected stock move to play out. If weekly options are available, those might be the optimal choice -- and during standard options expiration week, front-month options can easily serve the same purpose.

As you choose your strike price, consider your appetite for risk. An in-the-money option may cost more, but also has a relatively higher probability of retaining some intrinsic value at expiration. However, if you feel confident in your prediction for a sizable swing in the share price -- and you're not deterred by the prospect of a potential 100% loss -- an at-the-money or out-of-the-money option typically carries a lower upfront cost, which maximizes leverage on the trade.

5.) Determine your exit plan in advance.

Capturing a short-term stock move requires you to be nimble. Unfortunately, if you fail to create a concrete exit plan in advance, you may find yourself paralyzed by quick gains (or losses) in your options trade. How long should you ride out the gains on a winner? Do you want to close out a loser immediately, or wait to see if the stock pares its decline?

Of course, the answers to these questions will vary from one trader to the next. But regardless of how healthy your risk appetite might be, determine your target profit and stop-loss levels before you enter the trade. You may wish to enter corresponding orders with your broker, or you can simply use these numbers as guidelines after the trade is executed. Once your option starts gaining or losing value, it's too easy -- and too risky -- to start making emotional decisions based on greed or fear.

An analyst rating is a recommendation to buy, hold, or sell a given stock, based on multiple factors -- such as a company's earnings and revenue history, product pipeline, share price performance, and more. These ratings can range from bullish ("strong buy" and "buy"), to neutral ("hold"), to bearish ("sell" and "strong sell"). Taken as a whole, a stock's analyst ratings configuration can tell us at a glance how Wall Street feels toward that particular name.

Analyst ratings are changed via publicly issued upgrades and downgrades, which are often sparked by corporate events (such as product launches, shareholder meetings, or earnings reports). However, for various reasons, analysts can be slow -- or outright reluctant -- to change their ratings in response to a stock's evolving price trend.

The Contrarian Take on Analyst Ratings

Given that Wall Street analysts are the "experts" on the stocks they rank, it can be tempting for investors (and particularly those who are newer to trading) to defer to the big brokerage firms' bullish or bearish opinions. However, here at Schaeffer's, we take a contrarian approach to analyst ratings.

That doesn't mean we blindly bet against Wall Street analysts, though. Instead, we look for situations where a stock's price action appears to be out of sync with its analyst ratings, which can create tradable opportunities.

Identifying a Bearish Signal From a Contrarian Perspective

When a stock is trending lower and underperforming on the charts, you would expect to see a relatively higher percentage of "hold" and "sell" ratings from analysts. So, when we spot a downtrending stock with a high proportion of "buy" and/or "strong buy" ratings, we'd consider that stock to be extremely vulnerable to future downgrades, as analysts eventually adjust their ratings to reflect the poor price performance.

Since downgrades often result in fresh selling pressure for the affected stock, the prospect of future bearish analyst notes hints at additional downside ahead. When combined with a thorough review of other key technical, fundamental, and sentiment indicators, a high number of "buy" ratings on a lagging stock can be an effective contrarian sell signal.

Identifying a Bullish Signal From a Contrarian Perspective

By contrast, a stock that is outperforming on the charts, but mainly sports "sell" or "hold" ratings from analysts, would represent a bullish contrarian opportunity. As analysts gradually respond to the stock's positive price trend with upgrades, those research notes can draw new buyers to the stock, effectively perpetuating its uptrend. 

In summary, the key to correctly identifying a contrarian bullish or bearish signal relies on a thorough analysis of the stock's price action within the context of the prevailing sentiment among traders and analysts. Whenever a strongly uptrending stock is lacking in "buy" ratings, or a declining stock still carries a glut of "buys," savvy contrarians can take advantage by betting that analysts will eventually be forced to capitulate to the reality of the stock's price performance.

U.S. stocks are sluggish out of the gate, ahead of a busy day of Fed speeches. Among specific names on the move today are tech stock BlackBerry Ltd (NASDAQ:BBRY), cloud concern Synchronoss Technologies, Inc. (NASDAQ:SNCR), and biotech stock Cara Therapeutics Inc (NASDAQ:CARA). Here's a quick look at what's moving shares of BBRY, SNCR, and CARA.

Revenue Miss Sends BlackBerry Stock Down

BlackBerry stock is down 10% to trade at $9.93, after the company turned a quarterly profit, but revenue failed to meet expectations due to falling software sales. The bear gap today could mark the first time BBRY stock ends beneath its 80-day moving average since late March, and its first finish in single digits since mid-May. It's still been a solid 2017 for BBRY stock so far, which remains up 46% year-to-date and recently hit a two-and-a-half year high of $11.74 on June 1. Most analysts remain on the fence, however. Nine of the 12 brokerages assigned to BBRY stock rate it a "hold."

Possible Buyer Sends Synchronoss Stock Soaring

Synchronoss stock is skyrocketing, up 41% to trade at $17.20, after news broke that Siris Capital is interested in buying the firm for $18 per share. Prior to today, it'd been a tough year for SNCR stock, which fell to a near eight-year low of $10.11 on June 20. However, the shares are finally on pace to topple their 40-day moving average, and short sellers could be running scared. Short interest increased by a whopping 65% since the last reporting period, and accounts for nearly 20% of the stock's total available float.

FDA Designation Has Cara Therapeutics Stock Popping

Cara Therapeutics stock is up 13% to trade at $22.39, just off a nearly two-year high of $23.55, after the Food and Drug Administration (FDA) granted a breakthrough designation for I.V. Cr845, Cara's kidney disease drug. This adds to what has been a stellar year for CARA stock, with the shares more than quadrupling in the past 12 months, and up roughly 140% year-to-date.

Option buyers remain skeptical, however. Despite relatively light absolute volume, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CARA stock boasts a 10-day put/call volume ratio of 1.04, ranking in the 93rd percentile of its annual range. Plus, short interest would take nearly seven sessions to buy back, at Cara Therapeutics' average pace of trading -- plenty of fuel for a short squeeze.

Implied volatility (IV) refers to the expected movement of a security's price over a given time frame. IV is a crucial concept for options traders to understand, since it's a major component of an option's price. Higher IV results in higher option premiums, while low IV often translates into more affordable option prices.

Stock-specific events, such as management changes or earnings reports, can have a big impact on IV. If investors are expecting the stock to make a substantial move in one direction or the other in response to these known events, those expectations will push IV (and, by extension, option prices) higher. In the aftermath of the event, IV tends to decline rapidly as the market's reaction to the news is priced directly into the equity.

When IV spirals lower after an event, it's referred to as a "volatility crush," since options prices can drop so dramatically in such a short time frame. To ensure success in options trading -- and avoid the crush -- it's crucial to avoid buying extraneous volatility.

Before buying an option, it's possible to determine whether IV is relatively inflated by comparing it to the stock's historical volatility (HV). For example, a trader considering an option with one month (roughly 20 trading days) of shelf life would review the contract's IV level against the stock's 20-day HV. If IV is considerably higher than HV, it means expectations for future volatility are getting frothy. This type of situation is far from ideal for options buyers. When premiums are inflated, the upfront cost and total risk are that much steeper, and the stock must then stage an even greater move to surpass breakeven.

Whenever possible, premium buyers should be on the lookout for scenarios where IV appears to be underestimating the stock's ability to break out, as suggested by historical volatility. By keeping entry costs to a minimum, savvy traders can set their breakeven points as low as possible, and make the most of options trading leverage.

Put volume has exploded on the United States Oil Fund (USO), as the energy shares sink with oil prices. With July-dated crude futures slumping 3.2% to $42.79 per barrel -- in bear-market territory -- USO is trading down 2.6% at $8.88, fresh off an annual low of $8.83. Against this backdrop, 302,971 put options have traded on USO so far, seven times what's typically seen and with volume on track to settle in the 100th annual percentile. 

Most active are the August 8.50 and 9 puts, where almost 190,800 contracts have collectively traded. Trade-Alert indicates the bulk of the activity is due to one trader selling to close a 40,000-contract block of the 9-strike puts and using the proceeds to fund the purchase of a 70,000-contract block of the 8.50-strike puts. If this is the case, the options trader is hoping to capitalize on continued losses for USO over the next two months by rolling her bearish bet down.

Elsewhere, several symmetrical 25,000-contract lots were exchanged at USO's August 8, 8.50, 9, and 9.50 puts. Considering these blocks went off simultaneously, it's likely at the hands of one trader, though it's hard to tell at this point how they are connected.

More broadly, USO options traders have shown a growing appetite for long puts over calls in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 140,009 puts and 114,355 calls over the last 10 sessions. The resultant put/call volume ratio of 1.22 is up from its June 1 reading of 0.77.

However, as Schaeffer's Senior VP of Research Todd Salamone noted in this week's Monday Morning Outlook, the energy sector is vulnerable to additional losses as large speculators slowly unwind their long positions. As such, Salamone says to "avoid the energy group, and/or consider buying puts on energy names to trade around long positions."

Now's affordable time to purchase premium on short-term USO options, too. The energy fund's Schaeffer's Volatility Index (SVI) of 28% ranks in the 15th annual percentile, meaning low volatility expectations are being priced into near-term options -- a potential boon to premium buyers.

Drug stocks are on fire today, led by healthy gains from Regeneron stock. Meanwhile, the iShares Nasdaq Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI) just touched their highest points in more than a year, sparking a flurry of biotech options trading. What's more, if recent history is any indicator, the IBB and XBI exchange-traded funds (ETFs) could be headed even higher in July, and now is an opportune time for short-term options buyers to strike.

IBB ETF Looks to Take Out $300 

The iShares Nasdaq Biotechnology ETF was last seen 2.2% higher at $306.38, and earlier peaked at $308.12 -- its highest point since January 2016. IBB has spent the past 18 months in a channel of higher highs, and has closed the week north of the round-number $300 mark just twice in that time frame. Further, IBB shares are set to end atop the $302 area, which represents a 38.2% Fibonacci retracement of the ETF's decline from all-time highs in 2015 to its February 2016 lows.

IBB call options are flying off the shelves at nine times the average intraday pace, and with 24,000 contracts traded, volume has already surpassed the Aug. 1 annual high. Plus, the intraday put/call volume ratio of 0.32 is near an annual low, as fewer than 8,000 IBB put options have traded thus far. Nine of the top 10 most active options are near-term calls, with possible buy-to-open action detected at most. The most popular option is the weekly 6/23 305-strike call, with buyers expecting the iShares Nasdaq Biotechnology ETF to extend its climb through the end of the week, when the options expire.

Total IBB open interest is currently at an annual low, with fewer than 95,000 contracts outstanding. Still, the July 300 call is the most heavily populated option, with close to 4,900 contracts in residence. A takeout of the aforementioned round-number $300 level would place IBB shares above potential options-related resistance at this strike.

Now is an opportune time to buy short-term calls on IBB, if past is prologue. To start, the ETF has averaged a gain of 3.3% in July, since inception, according to data from Schaeffer's Quantitative Analyst Chris Prybal. That's the fund's best month of the year, in fact. Meanwhile, IBB's Schaeffer's Volatility Index (SVI) of 16% is higher than just 6% of all other readings from the past year, indicating the exchange-traded fund's short-term options are attractively priced right now, from a historical volatility standpoint. What's more, short interest represents nearly seven days of pent-up buying demand, at IBB's average daily trading volume -- plenty of fuel for a short squeeze.

XBI ETF Soars to Highest Point Since 2015

The SPDR S&P Biotech ETF (XBI) was last seen 2.9% higher at $76.33, and earlier rallied as high as $76.60 -- territory not charted since September 2015. As with IBB, the shares of XBI have been in a channel of higher lows and highs since bottoming around $44 in February 2016, and the ETF is set to end atop the $73 neighborhood -- a 61.8% Fibonacci retracement of its decline from its mid-2015 all-time high to last year's lows.

XBI options are trading at twice the normal afternoon clip, though puts are the options of choice, with 21,000 exchanged, compared to 14,000 calls. Nearly half of the XBI put volume is attributable to a block of 10,000 July 75 puts that crossed the tape earlier, though it's unclear whether they were bought or sold to open. If the speculator bought the puts, they could be locking in profits with an options hedge. If the trader sold the puts, they're expecting XBI to remain north of $75 in the near term.

Similar to IBB, open interest on SPDR S&P Biotech ETF currently sits at an annual low, with roughly 273,000 contracts outstanding. XBI is currently trading above both peak put and call open interest in the front-month series, at the July 70 put and July 73 call, respectively. 

XBI could continue to put those strikes in the rearview, too, if history repeats itself. In fact, the fund is one of the best to own in the month of July, historically, averaging a gain of 5.4% since inception -- its best month of the year. A short squeeze could add fuel to the ETF's fire, as it would take more than seven sessions to buy back all of these bearish bets, at XBI's average pace of trading. Options traders expecting more short-term upside for XBI can scoop up calls at a relative discount, as the fund's SVI of 23% is higher than just 7% of all others from the past 12 months.