2 Stocks That Could Be Prime Targets For Call Buyers

Both CERN and UIS options are attractively priced

Managing Editor
Aug 30, 2018 at 12:09 PM
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IT services providers Cerner Corporation (NASDAQ:CERN) and Unisys Corporation (NYSE:UIS) have both been steady climbers this summer. However, the fun is far from over, as both stocks recently flashed bullish signals heading into the new month. What's more, both CERN and UIS options are attractively priced at the moment.

Cerner Stock Looking to Break Out In September

Looking at Cerner, the stock is heading towards its best month since April 2017. The shares have added 26% since bottoming at $52 in early May, fueled by an early August bull gap in the wake of an upbeat quarterly report. For the past two weeks, though, the shares have tailed off, and are currently staring up at the $66 level.

Daily Stock Chart CERN

The good news is that according to Schaeffer's Senior Quantitative Analyst Rocky White, CERN is one of the best S&P 500 stocks to own in September. The stock has ended the month of September higher seven of the past 10 years, and averaged a healthy monthly gain of 5.9%. At last check, the equity was fractionally lower at $65.55. A similar September pop would place the shares near the $70 level for the first time since a late-January bear gap. 

What's more, the software name is also among the best stocks to own ahead of the shortened Labor Day week. According to White, in the past 10 years, the equity boasts an average return of 1.7% during this holiday week, and was positive eight times.

In the options pits, calls have been popular. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 15.26. This reading ranks in the 93rd percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets of late.

Near-term Cerner options are attractively priced right now, too. Its Schaeffer's Volatility Index (SVI) of 18% ranks in the 1st annual percentile, meaning short-term options are pricing in lower-than-usual volatility expectations at the moment, a boon to potential premium buyers.

Unisys' Charge Up the Charts Not Finished

Unisys stock has had a much steadier climb up the charts. The shares have more than doubled in 2018, with pullbacks contained by their 80-day moving average. Just yesterday, the shares nabbed a three-year high of $18.65, on news the high-flying stock was joining the S&P SmallCap 600 Index. While Unisys does not boast any historical September stats like Cerner, it is still flashing a bullish signal for next month.

Daily Stock Chart UIS

Specifically, the equity's Schaeffer's Volatility Index (SVI) -- a measure of front-month, at-the-money implied volatility (ATM IV) -- currently stands at just 35%. This SVI arrives in the 6th percentile of its annual range, indicating that speculative players have priced in lower volatility expectations for UIS stock options just 6% of the time in the past year.

This combination of a high stock price and low IV has yielded bullish returns for Unisys in the past, according to Schaeffer's Senior Quantitative Analyst Rocky White. Since 2008, there have been two occasions where UIS was trading within 2% of its annual high while its SVI was simultaneously in the 20th annual percentile or lower. Following those signals, the security was up 14.4% one month later, on average, with both of those returns positive. From the security's current price of $18.42, a move of similar magnitude would put the chip stock above $20 for the first time since July 2015.

A short squeeze could also help drive the shares higher. Short interest increased by 8.8% in the most recent reporting period to 9.82 million shares. This represents nearly 20% of UIS' total available float, and more than seven days of pent-up buying power. 

Make the Most of the next Expiration Week Countdown!


 




 
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