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4 Bullish Trading Ideas for the Holiday Speculator

Wal-Mart, Hertz, Starbucks, and Netflix look strong ahead of the holidays

by 11/20/2012 12:21:24 PM
Stocks quoted in this article:

Ah, the holiday season is almost upon us. Leftover Halloween items barely had a chance to bid farewell to consumers before a melee of red and green sprang up as far as the eye could see. This jolly time of year -- and the headaches that often come with it -- is approaching faster than the widely discussed "fiscal cliff." To help traders navigate the next several weeks without wanting to drown their anxieties with some questionable eggnog, we've highlighted four interesting holiday-related plays -- Wal-Mart Stores, Inc. (NYSE:WMT - 68.94), Hertz Global Holdings, Inc. (NYSE: HTZ - 14.92), Starbucks Corporation (NASDAQ:SBUX - 50.13), and Netflix, Inc. (NASDAQ:NFLX - 82.27).

Long-time devotees of Schaeffer's Investment Research know we analyze stocks with a three-pronged approach referred to as Expectational Analysis. We not only examine the technical and fundamental aspects of a security, but also the sentiment part of the equation. From a contrarian standpoint, we often find that technically strong equities surrounded by pessimism make for good bullish trading opportunities, and vice versa. The four stocks featured below could bode well for traders looking to place their bets on some seasonal upside.

Wal-Mart Stores, Inc.

WMT isn't pulling any punches this year. The popular retailer known for its low prices recently announced plans to kick off the "Black Friday" sales chaos at 8:00 pm sharp on Thanksgiving evening, which is two hours earlier than last year. However, although the company released quarterly earnings last week that topped consensus bottom-line estimates, investors focused on the fact that revenue fell short of Wall Street's expectations -- resulting in some downbeat analyst attention. Still, the retail powerhouse raised the lower end of its full-year outlook, and said it is preparing for a successful holiday quarter. What's more, despite the stock's recent dip, WMT is up about 22% on a year-over-year basis, and more than 15% in 2012.

Nevertheless, there is still plenty of pessimism lingering toward WMT. The equity's Schaeffer's put/call open interest ratio (SOIR) sits at 1.08, confirming puts outpace calls among options scheduled to expire in the next three months. This ratio arrives in the 57th percentile of its annual range, reflecting a slightly healthier-than-usual appetite for puts over calls. What's more, the equity's front-month gamma-weighted SOIR of 1.20 indicates that puts easily outweigh calls among near-the-money strikes in the December series of options. These skeptically slanted ratios increase the chances of WMT finding put-related support, while decreasing the possibility of hitting call-related resistance.

Last but not least, just over half of the analysts covering the security maintain a positive outlook toward the retailer. Specifically, 11 have handed out "strong buy" endorsements, compared to 10 tepid "hold" recommendations. This leaves ample room for future upgrades, which could push the stock even higher as investors react to bullish attention from the Street.

Hertz Global Holdings, Inc.

Traveling has always been a component of seasonal festivities, as car rental giant HTZ can surely attest to. The rental car company has been an overachiever on the technical front, gaining around 39% during the past year, and more than 27% year-to-date. Meanwhile, the company received approval from the Federal Trade Commission (FTC) last week to move forward with its $2.56-billion buyout bid for rival Dollar Thrifty Automotive Group, Inc. (NYSE:DTG). Earlier reports of the planned merger resulted in a bullish gap back in August, and the shares have remained north of the lower end of this gap area ever since.

Despite the stock's technical prowess, there are more than a few traders taking up residence in HTZ's bearish camp. In fact, the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.89 is just four percentage points shy of a pessimistic peak, meaning speculators have been buying puts over calls at a near annual-high clip. Similarly, Schaeffer's put/call open interest ratio (SOIR) of 0.53 is docked in the 66th percentile of its annual range, reflecting a healthier-than-usual appetite for near-term puts over calls.

Also of note, short interest on the equity accounts for about 10% of HTZ's available float -- or the equivalent of more than a week's worth of pent-up buying pressure, at the security's average pace of trading. In other words, the stock could stand to benefit from short-covering activity down the road.

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