Molina Healthcare Stock Could Make a Big Move Higher

If past is precedent, now is a good time to buy MOH call options

Managing Editor
Aug 16, 2018 at 2:41 PM
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Managed care concern Molina Healthcare, Inc. (NYSE:MOH) gapped higher on Thursday, Aug. 1, on the back of an impressive earnings report. Since then, the shares have continued soaring on the charts, and at last glance were seen 0.9% higher at $135.21 -- fresh off a record peak of $135.42. Below, we will take a look at how MOH has been faring long-term, and dive into why now may be an attractive time to bet on the healthcare name with options. 

Molina Healthcare stock has added more than 76% in 2018, with support coming from its rising 30-day moving average. Looking back 12 months, MOH has gained an impressive 138%. 

Daily Chart of MOH with 30MA

Meanwhile, Molina Healthcare stock's Schaeffer's Volatility Index (SVI) -- a measure of front-month, at-the-money implied volatility (ATM IV) -- currently stands at just 28%. This SVI arrives in the 5th percentile of its annual range, indicating that speculative players have priced in lower volatility expectations just 5% of the time in the 12 months. Plus, according to Schaeffer's Senior Quantitative Analyst Rocky, this combination of a high stock price and low IV has had bullish implications for MOH in the past.

Since 2008, there have been three occasions where MOH has been trading within 2% of its annual high while at the same time its SVI was in the 20th annual percentile or lower. Following those signals, the security was up 10.6% one month later, on average, with a 100% win rate. From the stock's current perch, a similar surge would put MOH near $149.52 -- straight into another level of record-high territory.

Plus, MOH has consistently rewarded premium buyers over the past year. This is per the stock's Schaeffer's Volatility Scorecard (SVS) currently docked in at a healthy 93 out of 100. This suggests that Molina Healthcare stock has tended to make larger-than-expected moves on the charts, compared to what the options market was expecting.

Finally, there's plenty of sideline cash to fuel additional upside. Short interest represents nearly eight sessions' worth of pent-up buying demand, at MOH's average pace of trading. And a round of upgrades could attract more buyers, too. Currently, seven of the 12 analysts following Molina shares maintain tepid "hold" or "sell" ratings.

 

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