Call Buyers Eye Record Highs For KKR Stock

KKR options are attractively priced, to boot

Managing Editor
Jul 17, 2018 at 2:18 PM
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KKR & Co. L.P. (NYSE:KKR) stock has been on a tear in 2018, adding 27% and relying on its 20-day moving average for support since late April. Earlier today, the investment firm announced it'll invest $400 million in AppLovin, a mobile marketing specialist, sending KKR up 0.8% to trade at $26.81. Although the equity remains a chip shot off its early July highs, it could soon vault to uncharted territory next month, if this bullish indicator is any guide.

Daily Stock Chart KKR

More specifically, on top of trading near its July 9 record high of $27.56, the equity is sporting unusually low volatility expectations for near-term options, based on its Schaeffer's Volatility Index (SVI) of 27% -- ranking in the low 14th annual percentile. Looking at the last three times KKR has flashed this type of combo of a high share price and low SVI, it's produced positive one-month returns each time, averaging a gain of 7%. A move of similar magnitude this time around would push the security past the $28 level and into record-high territory. 

In the options pits, calls have held a distinct advantage, albeit amid limited volume. The equity's Schaeffer's put/call open interest ratio (SOIR) sits at 0.24 and ranks in the 5th percentile of its annual range, indicating calls handily outnumber puts among options set to expire within three months. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms a substantial call bias, with long calls more than quintupling puts in the past 10 days.

Digging deeper, the August 28 call saw the largest increase in open interest during this time frame, adding more than 9,000 contracts. Some of this activity has been of the buy-to-open kind, indicating options traders expect KKR stock to break into record high territory once more by next month.

 

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