DexCom Stock Squeezing Shorts, Flashing "Buy" Signal

DXCM options are attractively priced

Managing Editor
Aug 23, 2018 at 12:07 PM
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DexCom, Inc. (NASDAQ:DXCM) has enjoyed a meteoric rise up the charts in the past year, fueled in part by an impressive quarterly report earlier this month. However, the ride could be far from over, with the medical device maker recently flashing a potential "buy" signal.

At last check, DexCom stock is up 2.7% at $143.96, and earlier today touched a new record high of $144.61, after Canaccord Genuity bumped its price target up to $150 from $125. Overall, the equity has more than tripled since its late-September lows at $42.62. 

Daily Stock Chart DXCM

In addition, DXCM's Schaeffer's Volatility Index (SVI) -- a measure of front-month, at-the-money implied volatility (ATM IV) -- currently stands at 34%. This SVI arrives in the 12th percentile of its annual range, indicating that speculative players have priced in lower volatility expectations just 12% of the time in the past year.

This combination of a high stock price and low IV has a bullish implication for the equity in the past, according to Schaeffer's Senior Quantitative Analyst Rocky White. Since 2008, there has been one other occasion where DXCM 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 that signal, the security was up 11.5% one month later.

While a sample size of one is as small as it gets, DXCM has consistently rewarded premium buyers over the past year. This is per the stock's Schaeffer's Volatility Scorecard (SVS), which is currently docked at an elevated 90 out of 100. This suggests that DexCom stock has regularly made larger-than-expected moves on the charts, compared to what its options were pricing in.

And from a sentiment perspective, continued short-covering support could help fuel DexCom shares higher as well. Short interest fell by 7.7% in the most recent reporting period, yet the 9.10 million shares sold short still represents a healthy 8.7% of DXCM's total available float, and nine days of pent-up buying power, based on average daily trading volumes. 

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