Red-Hot Burlington Stock Could Still Be a 'Buy'

BURL options are attractively priced

by Patrick Martin

Published on Aug 9, 2018 at 12:05 PM

Burlington Stores Inc (NYSE:BURL) has been a steady climber in 2018, and earlier today touched a fresh record high of $160.67. Making it even more intriguing, data suggests that now might be an appealing time for a bullish play on the discount retailer. 

At last check, BURL was up 1.4% to trade at $159.98. Meanwhile, the equity's Schaeffer's Volatility Index (SVI) -- a measure of front-month, at-the-money implied volatility (ATM IV) -- currently stands at just 27%. This SVI arrives in the 15th percentile of its annual range, indicating that speculative players have priced in lower volatility expectations just 15% of the time in the past year.

This combination of a high stock price and low IV has had bullish implications for BURL in the past, according to Schaeffer's Senior Quantitative Analyst Rocky White. Since 2008, there has been five prior occasions where BURL have been trading within 2% of its annual high while at the same time its SVI was in the 20th percentile or lower. Following those prior signals, BURL was up 6.31% one month later, indicating fresh record highs could soon be on the horizon.

Looking at the charts, Burlington stock has relied on double-barreled support in the form of its 50- and 80-day moving averages for most of 2018. Longer term, the equity has doubled in the past 12-months, thanks to two earnings-induced bull gaps in March and May. The coat retailer will report earnings before the open on Aug. 30. 

Stock Chart BURL

However, near-term options traders have preferred puts. The security's Schaeffer's put/call open interest ratio (SOIR) of 1.06 ranks higher than 82% of all other readings from the past year, meaning speculators are more put-heavy than usual among options expiring in three months or less. There is notable open interest found at the August 150 and 145 puts, most of which has been bought to open, according to data from the major exchanges. Of course, this could be from shareholders using options to hedge.

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