Why Call Buyers Should Consider Flex Stock

Options traders have focused on Flex puts

Aug 17, 2017 at 11:16 AM
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Flex Ltd (NASDAQ:FLEX) offers a variety of technologically driven solutions for areas like manufacturing and logistics. The stock has been doing quite well, enjoying a fairly steady multi-year uptrend, and touching a 13-year high of $17.76. Over the past year alone, FLEX shares have added 26% to trade at $16.02, but suffered a post-earnings pullback in late July. The equity has been trading sideways in the weeks since, and could now be presenting a buying opportunity for long-term investors and options traders alike. 

Specifically, Flex's recent dip was contained by its 200-day moving average, a trendline that's offered excellent support over the past three years. Data from Schaeffer's Senior Quantitative Analyst Rocky White reveals that FLEX has tested this key moving average six times in recent years, and has averaged a 21-day gain of 6.3% following such occasions, while ending positive 80% of the time. Such a move this time around would put the shares back atop the $17 level. 

flex stock

Despite this fact, options traders have been very focused on long puts in recent weeks. This is evidenced by FLEX's 10-day put/call volume ratio of 2.52 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does this show that put buying has more than doubled call buying, but it ranks in the 98th annual percentile, revealing such a put-skew to be quite unusual. 

Digging deeper, three of the most popular options during the past 10 days were the August 15, 16, and 16.50 puts, which are all now in the security's list of top open interest positions and expire at the close tomorrow. An unwinding of bearish options positions could also spark upside for the shares. 

Data also suggests it's a good time to target short-term Flex options. For instance, the security boasts a Schaeffer's Volatility Index (SVI) of 21%, which ranks in the bottom quintile of its annual range. This tells us volatility expectations for near-term contracts are unusually muted at the moment -- a potential boon for premium buyers. 

Plus, short interest has been falling fast. During the past two reporting periods alone, these bearish bets declined by 25%. A continuation of this short-covering trend could provide tailwinds for Flex stock, as well. 

The equity already has the approval of analysts. Eight brokerage firms have issued coverage on Flex shares, and seven of them say to buy them. Moreover, the stock's average 12-month price target stands at $18.58, representing 16% upside to current levels. 

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