Historical Tailwinds Could Propel Cardinal Health Inc (CAH) Past Resistance

Cardinal Health Inc (NYSE:CAH) has historically traded higher in January, and options bulls are betting on more of the same

Dec 28, 2016 at 12:40 PM
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Drug distributor Cardinal Health Inc (NYSE:CAH) has been making a series of lower lows in 2016, resulting in a year-to-date deficit of 18.3%. And though the healthcare stock is up 16.4% since notching a pre-election low of $62.70 on Nov. 8 , it is still staring at several layers of technical resistance. Nevertheless, CAH has historically been one of the best-performing stocks in January, and options traders are hoping these historical tailwinds are enough to boost the shares higher in the near term.

Looking more closely at the charts, CAH was last seen trading at $72.98, and earlier hit an intraday high of $73.69. Not only does this peak coincide with the stock's descending 80-day moving average, but also a 38.2% Fibonacci retracement of the security's December 2015 annual high at $91.23 and the previously mentioned low. Plus, the $73-$74 region is home to the security's 2014 highs. If past is precedent, though, the stock could stage a breakout next month. In fact, over the past 10 Januaries, the security has been positive nine times, averaging a 4% gain!

daily cah since december 2015

Options traders would likely be pleased, should history repeat itself. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CAH's 50-day call/put volume ratio of 2.40 ranks in the 85th annual percentile. Simply stated, calls have been bought to open over puts at a quicker-than-usual clip over the past 10 weeks.

Echoing this call-skewed backdrop is CAH's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.50. In other words, near-the-money calls double puts among options set to expire in three months or less. Drilling down, peak call open interest in the front-month January 2017 series is located at the 75 strike.

Now appears to be an opportune time to purchase premium on CAH's short-term options, too. Not only does the stock's Schaeffer's Volatility Index (SVI) of 22% rank lower than 85% of all comparable readings taken in the past year, its 30-day at-the-money implied volatility of 10.5% arrives in the 17th annual percentile. Summing it all up, low volatility expectations are currently priced into Cardinal Health Inc's (NYSE:CAH) short-term options.

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