Options Traders Bullish as Infosys Stock Nears Key Trendline, Earnings

Infosys stock could get a lift from its 40-day moving average, if past is precedent

Apr 6, 2017 at 1:56 PM
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Infosys Ltd (ADR) (NYSE:INFY) has a big week ahead of it, with the IT services firm due to report earnings on Wednesday, April 12. Ahead of that quarterly event, options traders have been betting bullishly on INFY stock, albeit on low absolute volumes. Based on data from Schaeffer's Senior Quantitative Analyst Rocky White, the shares -- not to mention, bullish INFY options traders -- could get a boost from an underfoot trendline.

Diving right in, White's research shows the 40-day moving average has historically acted as support for INFY stock. During the past three years, the shares have touched the trendline eight times, and looking out 21 days, they've been positive 63% of the time. On average, the stock's gained 3.6% over that time frame.

infosys stock chart today

Digging deeper on the charts, INFY stock has lagged over the long term. Nonetheless, the shares have been heating up since an early February bottom, up almost 15% at $15.40. Thus, it's no surprise to see options traders placing bullish bets of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), INFY has racked up a top-heavy 10-day call/put volume ratio of 7.89 -- just 9 percentage points from a 12-month peak.

However, not everyone's sold on the recent outperformer. Ten of 11 analysts rate the stock a tepid "hold," while short interest has risen to more than 70 million shares. At INFY's average trading rate, it would take more than two weeks to cover these short positions. Taken together, there's plenty of room for upgrades and/or short covering. This is likely why White, earlier this week, noted the stock on his short list of bullish contrarian trade recommendations.

That said, if shares of Infosys Ltd are to keep trekking higher, they'll have to buck their recent trend toward bearish earnings reactions. Specifically, the stock has suffered sharp losses in the session subsequent to the company's past three earnings reports. On the bright side, prior to those negative returns, INFY stock was positive post-earnings for three straight quarters, with single-session gains of more than 8% each time.

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