Prime Time For Bulls to Buy Seagate Technology Stock Options

Sentiment toward Seagate Technology (STX) stock remains bearish despite long-term technical strength

Mar 23, 2017 at 11:14 AM
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Data storage specialist Seagate Technology PLC (NASDAQ:STX) has been on a roll, adding 145% from its May low to trade at $45.22. Propelled by a well-received earnings report in late January, the shares rallied to a fresh 52-week high just below the round $50 mark, and have since pulled back slightly. Earlier this week, STX stock briefly dipped below the rising 50-day moving average, as well as its lower Bollinger Band. But the shares quickly retook both of these levels, hinting at a double-barreled bullish signal.

Seagate stock chart today

STX could certainly stand to benefit from a round of short covering and/or upbeat analyst attention. Short interest notched a four-year high last month. These bears have since been in covering mode, but with nearly 11% of the equity's total float still shorted -- representing almost eight sessions' worth of buying power, at STX's average daily volume -- the shares could see more gains as these pessimists head for the exits. Meanwhile, 15 out of 21 brokerage firms maintain a rating of "hold" or worse on the stock, leaving the door wide open for future upgrades.

Despite the stock's long-term technical strength, options traders have taken an unusually put-skewed approach, particularly among near-term strikes. Specifically, STX holds a Schaeffer's put/call open interest ratio (SOIR) of 1.54 -- indicating put open interest easily outweighs call open interest among options set to expire in three months or less. Moreover, this reading ranks in the high 91st percentile of its annual range. Plus, put buying has picked up on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where the equity's 10-day put/call volume ratio of 0.87 ranks near the top quartile of all readings from the last 12 months. While some put buyers may be STX shareholders hedging, a mass exodus among "vanilla" bears could add fuel to the stock's proverbial fire.

Now is a prime time to pick up Seagate Technology PLC's short-term options, too. The stock's Schaeffer's Volatility Index (SVI) of 30% rests below 93% of all comparable readings from the past year, indicating premium is pricing in unusually low volatility expectations at the moment. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) of 100 suggests the options market has underpriced STX stock's ability to make big moves on the charts over the last 12 months. 

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