Skechers Stock Ripe for a Bullish Options Trade

SKX calls have rarely been cheaper than puts

Feb 15, 2018 at 2:31 PM
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Even amid a broader stock market correction, shares of Skechers USA Inc (NYSE:SKX) topped out at a two-year high of $42.73 on Feb. 9, after the footwear retailer's fourth-quarter earnings and revenue beats were met with a round of price-target hikes. While SKX stock consolidated gains this week, it has pulled back to a trendline that has had bullish implications in the past. With plenty of skepticism left to unwind on a stock that's still boasting a 50% year-over-year gain, it could be time to bet on SKX's next leg higher.

Specifically, SKX shares are now within one standard deviation of their 40-day moving average -- a trendline the equity has consistently traded north of since a late-October bull gap. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been seven other times in the last three years when the stock has pulled back to this trendline after spending a significant time above it, resulting in an average 21-day gain of 9.14%.

skx stock daily chart feb 15

While it's been a flip of the coin as to whether Skechers stock is positive at the end of this one-month period, a similar move to the upside would put it near $43.18 for the first time since October 2015, based on the equity's current price of $39.52. This could spark a short squeeze, too, which would likely create tailwinds for the shares. Short interest surged 25.7% in the two most recent reporting periods to 6.28 million shares -- representing nearly four days' worth of pent-up buying demand, at the average pace of trading.

Those wanting to bet on more upside for SKX stock may want to consider doing so with call options. For starters, the equity's Schaeffer's Volatility Index (SVI) of 33% ranks lower than 93% of all comparable readings taken in the past year, meaning muted volatility expectations are being priced into short-term contracts. Plus, Skechers calls have rarely been cheaper than their put counterparts over the last year, based on the security's 30-day implied volatility skew of 14% -- in the 94th annual percentile.

 

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