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Option Idea of the Week: Pitney Bowes Inc. (PBI)

Why bullish bettors may want to consider PBI

by 12/20/2013 11:03:20 AM
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From a technical standpoint, Pitney Bowes Inc. (NYSE:PBI) has experienced a banner 2013, considering the shares have surged about 107% year-to-date, and bested the broader S&P 500 Index (SPX) by almost 15 percentage points during the past three months. Meanwhile, the stock reached a two-year high of $24.18 on Nov. 15, and its subsequent pullback was cushioned by its 50-day moving average, which has served as a floor since late July. Taking this technical strength into account -- along with the lingering skepticism hovering over the software concern -- now may be an opportune time to bet on another run higher for the security.

Daily Chart of PBI since December 2012 With 50-Day Moving Average

In reference to said pessimism, traders have been placing bearish bets on PBI with greater rapidity in recent months. In fact, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that 15,569 puts have been bought to open during the past 10 weeks, compared to just 10,195 calls -- resulting in a 50-day put/call volume ratio of 1.53.

In similar fashion, PBI's Schaeffer's put/call open interest ratio (SOIR) sits at 1.42, indicating puts outnumber calls among options slated to expire in the next three months. This ratio ranks higher than 64% of similar readings taken within the past year, implying near-term speculators are more put-heavy toward the stock than usual at the moment. An unwinding of these put positions -- particularly at out-of-the-money strikes in the January series -- could end up serving as a tailwind for the equity.

Elsewhere, although short interest declined by 13.4% during the most recent reporting period, these pessimistic plays still account for a lofty 16.6% of PBI's available float. It would take roughly 10 days to cover these shorted shares, at the security's average pace of trading. Should the stock add to its already impressive 2013 gains, it could ultimately benefit from a short-covering rally down the road.

Additionally, only one out of four covering analysts have deemed the equity worthy of a "strong buy" endorsement, while the remaining three have handed out tepid "hold" suggestions. Also, the stock's average 12-month price target of $22.50 denotes expected upside of just 2.3% to PBI's current price at $22.00. This leaves plenty of room for bullish initiations, upgrades, or price-target hikes, which could help push the shares higher.

Options players wanting to wager on additional gains for Pitney Bowes Inc. (NYSE:PBI) may wish to consider buying the stock's in-the-money April 2014 17-strike calls, which are presently asked at $5.20. Please note that the firm is tentatively scheduled to report fiscal fourth-quarter earnings between Jan. 27 and Jan. 31, 2014.


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