Cautious? Risky? Our Volatility Scorecard Can Help

Schaeffer's Volatility Scorecard (SVS) identifies stocks where realized volatility has exceeded options-implied volatility over the past year, highlighting opportunities for options traders. Moderna (MRNA), despite a 40% YTD decline, consistently generates moderately positive option returns, while high-growth stocks like AppLovin (APP), Hims & Hers (HIMS), Rocket Lab (RKLB), and SoundHound AI (SOUN) show significant average straddle returns; with earnings season concluding, a volatility crush may offer more affordable option premiums.

Analysis

Schaeffer's Volatility Scorecard (SVS) is presented as a valuable proprietary metric for options traders, designed to identify equities where realized volatility over the past year has consistently surpassed the volatility expectations priced into their options. The SVS, a score ranging from zero to 100, is calculated based on hypothetical daily at-the-money straddle trades with 21 days to expiration, weighting 40% to average straddle return, 40% to the percentage of positive returns, and 20% to the percentage of straddles that doubled. A high SVS suggests an equity has historically provided more significant price movement than anticipated by options markets, benefiting premium buyers. For example, Moderna (MRNA), despite a reported 40% decline in 2025 and an 80% year-over-year drop, is noted for consistently achieving high SVS scores (above 90 for many weeks), leading to moderately positive option returns. Conversely, high-growth stocks such as AppLovin Corp (APP), with a reported 712% gain in 2024, alongside Hims & Hers Health (HIMS), Rocket Lab USA (RKLB), and SoundHound AI (SOUN), demonstrate substantial average straddle returns, often exceeding 60%, appealing to traders with a higher risk tolerance. The article also highlights stocks like Mondelez International (MDLZ), Delta Air Lines (DAL), and Oracle Corp (ORCL), which, along with MRNA, are characterized as suitable for traders seeking more consistent, smaller gains, boasting positive straddle rates of 60% or more and SVS scores consistently above 90 in the last 26 weeks. With the bulk of earnings season concluded, a potential 'volatility crush' is anticipated, which could reduce option premiums and make these SVS-identified opportunities more attractively priced.

Key Decisions for Investors

• Investors specializing in options should consider utilizing metrics like the Schaeffer's Volatility Scorecard to identify equities where historical realized volatility has outpaced implied volatility, potentially offering advantageous entry points for premium buying strategies.
• Tailor stock selection to risk preference: for consistent moderate returns, evaluate names like MRNA, MDLZ, DAL, and ORCL, which show high SVS scores and frequent positive straddle outcomes; for higher potential returns with commensurate risk, consider growth stocks like APP, HIMS, RKLB, and SOUN, noted for significant average straddle returns.
• Monitor for the anticipated post-earnings 'volatility crush', as this period may offer more favorable pricing for options premiums on stocks that have demonstrated high SVS characteristics.