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Red Hat, Inc. (NYSE:RHT) hasn't been much to write home about from a technical perspective, given the stock's year-to-date loss of around 7%, as well as its year-over-year decline of more than 18%. What's more, the shares have underperformed the broader S&P 500 Index (SPX) by nearly 9 percentage points during the past 40 sessions. On the charts, the equity has surrendered about 14% since touching a 2013 high of $57.10 on Feb. 1. Meanwhile, the stock's most recent rally attempt was thwarted by its 50-day moving average, a trendline not conquered in almost two months. In light of this technical weakness -- and the prevailing optimism hovering over the security -- RHT could make for a lucrative bearish play in the near term.
A closer look at Red Hat, Inc.'s sentiment scope reveals that calls bought to open have more than tripled puts during the past 10 weeks, according to data pulled from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resultant 50-day call/put volume ratio of 3.53 ranks higher than 74% of comparable 52-week readings, indicating traders have been picking up bullish options over bearish at an accelerated clip.
Likewise, the security's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.37, confirming calls outpace puts among options with a shelf-life of three months or less by a margin of nearly 3-to-1. This ratio registers in the 21st percentile of its annual range, signaling short-term traders have been more call-heavy toward the stock less than one-fourth of the time during the last 12 months. This abundance of bullish bets -- especially at the May 50 strike, which holds open interest of nearly 1,700 contracts -- could potentially translate into options-related resistance over the next few months.
Elsewhere, short interest on RHT has declined by more than 28% during the past two reporting periods, and now these bearish bets make up just 1.8% of the equity's available float. In fact, it would take less than a day to cover these shorted shares, at the stock's average pace of trading -- signaling a paltry supply of sideline cash. In other words, it's doubtful the security will benefit much from future short-covering activity.
There is plenty of love to be found for RHT among the brokerage bunch, as well. The equity currently boasts 14 "strong buys" and two "buy" endorsements, compared to nine "holds" and just one "strong sell" recommendation. Even more telling, the stock's average 12-month price target of $58.48 denotes expected upside of about 19% from its present perch at $49.25, as well as territory not charted since mid-September. This leaves the software concern vulnerable to future downgrades and/or price-target cuts, which could exacerbate Red Hat, Inc.'s technical troubles.
Traders hoping to cash in on some additional downside for RHT may want to contemplate purchasing the security's June 57.50 puts, which are in the money and sport an ask price of $9.60. It should also be noted that the firm is tentatively scheduled to reveal fiscal first-quarter earnings between June 17 and June 27. Speculators should be aware that a report released in the earlier end of this time frame will encompass June expiration on the 21st.