Buy Signal Says Now's the Time to Trade Seagate Technology Calls

March-dated calls on Seagate are going cheap just as the stock rallies from a key moving average

Feb 16, 2018 at 10:05 AM
facebook twitter linkedin


Shares of data storage specialist Seagate Technology PLC (NASDAQ:STX) pulled back along with the rest of the equities market in early February, but data from Schaeffer's Senior Quantitative Analyst Rocky White suggests you should definitely buy this dip. In fact, STX just sent up a buy signal that has never once failed, according to White.

Specifically, he screens for stocks that have pulled back to within one standard deviation of a benchmark moving average, after having spent the majority of the past two months above it. In this manner, the study drills down on stocks that are undergoing pullbacks within a broader uptrend.

In the case of Seagate stock, the tech issue recently met up with its rising 40-day moving average. Looking aback at the past four pullbacks to this trendline, the five-day returns are frankly unimpressive -- STX is positive only half the time, and the average return is a drop of 1.06%.

However, looking out 21 days after a pullback to its 40-day moving average, STX is higher 100% of the time. What's more, the average return over this time frame is an impressive 9.11% -- suggesting there's plenty more upside in store following the tech stock's latest bounce from this trendline.

stx 40-day moving average test

Continued short-covering activity could also provide fuel for an STX rally this time around. Short interest fell by 8.6% in the most recent reporting period, but still accounts for a healthy 12.3% of the equity's float -- an accumulation of shares that represents more than six times Seagate's average daily trading volume. A capitulation by these remaining bears could send STX sharply higher over the short term.

Plus, despite the recent bout of broad-market volatility, it's an appealing time to buy options premium on STX. Schaeffer's Volatility Index (SVI) checks in at 34%, in the 34th percentile of its annual range, which means that March-dated Seagate options have priced in lower volatility expectations only 34% of the time in the past year. In other words, short-term STX options are attractively priced right now, from a volatility perspective -- making call options an ideal vehicle to bet on another extended rally from that reliable 40-day support.

Winning With Weekly Options

1606854690

  


 
Special Offers from Schaeffer's Trading Partners