FireEye Stock Signaling A Breakout Above $20

FEYE could hit another multi-year high in the next month

by Patrick Martin

Published on Mar 13, 2018 at 12:25 PM
Updated on Mar 13, 2018 at 12:30 PM

FireEye Inc (NASDAQ:FEYE) stock has been on a tear lately, racing to a two-year high of $18.29 last Thursday. If past is precedent, the software name could be gearing up for an even bigger move in the coming months. 

FireEye stock is down 1.2% today to trade at $17.59, pulling back after logging a fifth straight weekly win. The shares have tacked on 25% in 2018, guided higher by their rising 10-day moving average since an earnings-induced bull-gap on Feb. 9. 

Schaeffer's Senior Quantitative Analyst Rock White compiled a list stocks trading near their 52-week high yet sport unusually low volatility expectations, measured by our Schaeffer's Volatility Index (SVI). The most recent study produced 25 names, including FireEye, as its SVI of 31% ranks in the low 5th percentile, suggesting it could be a good time to target near-term options contracts.

The shares flashed a similar signal one other time since 2008. A month later FEYE was up 14.1%. A move of similar magnitude would put the stock above the $20 level for the first time since January 2016. 

In the options pits, calls are decidedly in favor. The equity's 10-day call/put volume ratio of 11.11 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ shows call buying has outnumbered put buying by an 11-to-1 ratio. Not only that, but this ratio ranks higher than 92% of all others from the past year.

Digging deeper, the March 18 call saw the largest increase in open interest during this time frame. According to Trade-Alert, there has been  a mixture of buy-to-open and sell-to-open activity at this strike. Those buying the calls expect FEYE stock to keep climbing, while those writing the calls see the $18 level as short-term resistance through the end of this week. 

Outside the options pits, a short squeeze could be in play, as short interest plummeted to the lowest point since May 2016, yet still accounts for nearly 10% of the total float. Going by average daily volumes, it would take almost one week for these bears to cover their positions. Analysts share this skeptical outlook, with a majority maintaining tepid "hold" recommendations. 

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