2 Top Stocks Set to Sail Even Higher

Earlier today, Schaeffer's Senior Quantitative Analyst Rocky White highlighted 20 stocks with the best-looking charts in 2016. Included on the list were a pair of medical technology companies, Baxter International Inc (NYSE:BAX) and Stryker Corporation (NYSE:SYK). Below, we'll take a closer look at BAX and SYK, including recent options activity on the medical tech stocks.

BAX made headlines about a week ago, lifting its earnings outlook for the foreseeable future and winning applause from the analyst crowd. On Monday, it was also revealed that David Einhorn's Greenlight Capital upped its stake in BAX to 1.2 million shares. Given these positive developments, it's no surprise to see that the stock has taken off on the charts, up almost 18% year-to-date at $44.93 -- and last week touching a record high of $46.95.

Along with the stock price, options volume on BAX has soared. In fact, total open interest is at its highest level in a year, and intraday volume is currently running at two times the usual rate.

Digging deeper, options traders have been buying to open BAX puts over calls at an accelerated pace. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.23 ranks in the high 88th percentile of its annual range. Underscoring this trend toward puts, BAX's Schaeffer's put/call open interest ratio (SOIR) rests at a one-year high of 1.01, with put open interest having a slight absolute advantage.

Given Baxter International Inc's outstanding technical track record, it's possible the recent rash of put buying is simply the work of shareholders hedging against an unexpected downturn. That said, a capitulation among "vanilla" bulls could add fuel to the stock's fire.

Shifting gears, SYK has been anything but a slouch on the charts, burning to a 19% year-to-date lead at $110.58. As recently as April 21, the medical technology stock touched an all-time peak of $113.85.

Yet, options activity has tilted in a bearish direction of late, albeit amid relatively low absolute volume. SYK's 10-day ISE/CBOE/PHLX put/call volume ratio comes in at a top-heavy 24.23 -- higher than all but 11% of readings recorded in the past year -- with more than 24 puts bought to open for each call. What's more, put open interest of nearly 34,000 contracts ranks in the 100th percentile of its annual range.

A protective put strategy, like we mentioned before, is certainly a possibility with Stryker Corporation. But again, from a contrarian perspective, an unwinding among true option bears has the potential to serve as a tailwind for the medical tech stock. Additional short-covering activity could serve as a catalyst higher, too, given SYK's short-interest ratio of 4.20.

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