Option Premiums Attractive On Hong Kong Shipping Stock

The stock has been consolidating near the $9 level in recent weeks

Managing Editor
Jun 25, 2018 at 12:09 PM
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Chinese stocks continue to land under the microscope in light of the U.S.-China trade spat. For example, Hong Kong-based containership specialist Seaspan Corp (NYSE:SSW) is sliding today -- though the sell-off may be short-lived. Below we will examine how SSW has been faring on the charts, as well as why now may be an affordable time to bet on the stock's next leg higher, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

At last check, SSW was down 2.9% at $8.84. However, this is a rare dip, as the stock has been an outperformer on the charts this calendar year, surging higher since a mid-March bottom of $5.50, while touching an annual high of $9.30 on May 14. Since then, the shares have been consolidating just below this level.

Daily Chart of SSW Since December 17

Seaspan stock's Schaeffer's Volatility Index (SVI) is docked at 59% -- in the 13th annual percentile, meaning premium on short-term options contracts is relatively cheap at the moment, from a volatility perspective. According to White, the one other time since 2008 where SSW was trading near 52-week highs with its SVI ranked in the 20th annual percentile or lower, the stock rallied 15.5% over the next month. Another rally of this magnitude would put Seaspan shares around $10.21.

Short interest on SSW fell by 4.9% during the most recent reporting period, but still represents about 9% of the stock's total available float. At Seaspan stock's average daily trading volume, it would take nearly four days for shorts to cover their bearish bets -- hinting at plenty of buying power still on the sidelines.

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