LITE stock has added 46% year-to-date
Optical equipment specialist Lumentum Holdings Inc (NASDAQ:LITE) recently pulled back to a key trendline that has had bullish implications in the past. If history repeats itself, shares of LITE could close in on fresh record highs over the next several weeks. Below, we will take a look at this reliable buy signal, and examine how options traders are playing the outperforming equity.
According to Schaeffer's Senior Quantitative Analyst Rocky White, Lumentum is now trading within one standard deviation of its 160-day moving average, after a lengthy stint above this trendline. Following the last six pullbacks to this moving average in the past three years, the tech stock was up an average 20.45% one month later, and was higher 100% of the time. A similar rally from the stock's current perch around $56.30 -- up 0.5% today on Coherent earnings -- would have LITE flirting with the $68 level, near the stock's July 26 all-time high of $68.63.
A short squeeze could also provide fuel for a bigger Lumentum run. Short interest topped out at a record high 11.40 million shares in mid-September. While these bearish bets have decreased since then to 11.03 million shares, this still represents a hefty 18.8% of LITE's total available float. It would take more than eight days for shorts to fully cover their positions, at the equity's average pace of trading.
In the options pits, call buying has been more popular than put buying in recent months. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LITE boasts a 50-day call/put volume ratio of 3.97, which ranks in the 75th percentile of its annual range.
Digging deeper, the December 60 call is home to peak open interest of 15,303 contracts. It appears there's been a mix of buy- and sell-to-open activity here, according to Trade-Alert. Those initiating long calls expect LITE to break out above $60 by expiration at the close on Friday, Dec. 15, while those writing the calls are betting on the round-number level to serve as a ceiling through year's end.