Time to Buy Calls on Patterson-UTI Energy, Inc. (PTEN)?

Outperforming Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is surrounded by skepticism

by Karee Venema

Published on Jul 21, 2016 at 1:58 PM
Updated on Jul 21, 2016 at 2:44 PM

Energy stock Patterson-UTI Energy, Inc. (NASDAQ:PTEN) has put in a strong performance on the charts, boasting a 35.6% year-to-date lead, thanks in part to crude oil's impressive second-quarter bounce. With the stock pulling back to a historically bullish trendline -- and sentiment skewed toward the skeptical side both in and out of the options pits -- now may be the time for contrarian traders to strike on PTEN stock.

Specifically, since hitting an annual high of $22.12 on June 8, PTEN has pulled back to its rising 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the 12 other times this signal has occurred in the past three years, the stock has gone on to average a 21-day gain of 5.4%, and has been positive two-thirds of the time. Today, shares of the energy stock are fractionally higher at $20.45, even as September-dated crude futures sink 1.5% to trade at $45.05 per barrel.

PTEN daily chart

Despite this impressive technical showing, speculative traders have been quick to initiate long puts over calls in PTEN's lightly traded options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 21.28 rests in the 81st annual percentile. Should the shares continue to climb, an unwinding of the hedges related to these bearish bets could translate into a fresh burst of buying power.

Looking elsewhere, it appears short sellers have already begun to capitulate to PTEN's upward momentum. However, while short interest dropped 10.4% in the most recent reporting period, it still accounts for nearly 12% of the security's available float, or about a week's worth of pent-up buying demand, at the average daily volume. A continued capitulation from these bearish bettors may create tailwinds for PTEN.

Finally, the stock could also stand to benefit from a round of bullish brokerage notes. Currently, more than half of analysts covering Patterson-UTI Energy, Inc. (NASDAQ:PTEN) maintain a "hold" or worse recommendation, while the average 12-month price target of $21.09 is within a stone's throw of the equity's current perch -- leaving the door wide open for upgrades and/or price-target hikes. It seems some of these skeptics are starting to change their tune, with Nomura and Wunderlich both raising their price targets on PTEN earlier this week.

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earning announcements before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

Research Exposes Shortcut to Stock Market Wins
A simple way to stop picking losers, and start cashing in like Wall Street's elite.
Spotify Stock Shaky as Amazon Eyes Podcasts
Amazon's interest in podcasts puts SPOT in focus
AZO Shifts Higher After Earnings
AutoZone's fiscal third-quarter results beat estimates
One New Company Looks Ready To Clean Up On China’s Lithium Mess
Click to continue to advertiser's site.