Option Bulls Should Consider This Luxury Apparel Stock

A short squeeze could propel RL stock to new heights

by Emma Duncan

Published on Aug 9, 2018 at 12:49 PM

Luxury apparel stock Ralph Lauren Corp (NYSE:RL) has been in a channel of higher highs and lows since June 2017, with pullbacks contained by its 80-day and 100-day moving averages. The shares have rallied more than 56% in the past year, and notched a three-year high of $147.90 after earnings on July 31, before taking a breather. What's more, there could be more gas in the tank for Ralph Lauren stock, which remains unappreciated on Wall Street. At last check, the shares were up 1.5% at $136.25.

RL stock chart aug 9

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, Ralph Lauren sports one of the best year-to-date returns in the underloved personal goods sector, yet boasts very few "buy" ratings from analysts -- making it an attractive contrarian trade. Specifically, just 13% of analysts consider RL worthy of a "buy" or better endorsement. A round of well-deserved upgrades could propel the shares even higher.

Short interest on Ralph Lauren stock fell nearly 9% during the most recent reporting period, but still represents more than 11% of the stock's total available float. At RL's average daily trading volume, it would take over eight sessions for shorts to cover their remaining bearish bets. That's ample sideline cash to drive RL to new heights.

Lastly, now may also be an affordable time for short-term traders to jump on the RL bandwagon. This is per the equity's Schaeffer's Volatility Index (SVI) of 26%, which ranks in the 12th annual percentile -- meaning near-term options are pricing in relatively low volatility expectations at the moment.

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