Buy Calls After Bullish AMC Stock Signal

AMC recently broke above its 80-week trendline

Managing Editor
Sep 19, 2018 at 3:04 PM
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AMC Entertainment Holdings Inc (NYSE:AMC) is higher in afternoon trading, as the stock continues its mid-year climb on the charts. Specifically, AMC recently broke above its 80-week moving average, and peaked at a fresh annual high of $21.30 on Sept. 14. What's more, the security has surged 34% year-to-date, and per data from Schaeffer's Senior Quantitative Analyst Rocky White, now seems to be an ideal time to bet on AMC stock's uptrend via call options.

Weekly Chart of AMC with 80Week MA

That's because AMC stock's short-term options are attractively priced right now. This is per the security's Schaeffer's Volatility Index (SVI) of 44%, which ranks in the 13th percentile of its annual range -- suggesting near-term options are pricing in relatively low volatility expectations.

According to White, there has been one other time when the equity was trading within 2% of its annual high while its SVI was simultaneously perched in the 20th percentile of its 12-month range or below. After this prior signal, the shares were 11.6%  higher one month later. From its current perch of $20.25, a lift of this magnitude would put the equity at $22.60 -- a fresh annual high.

Meanwhile, near-term options traders seem to be quite skeptical toward AMC, based on the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.25, which ranks in the 89th percentile of its annual range. In other words, short-term traders have rarely been more put-heavy toward the security during the past year.

Lastly, short interest on AMC fell 15.8% during the most recent reporting period, but still represents a healthy 24.1% of the stock's total available float. A continuation of this short-covering trend could easily fuel additional upside in the days ahead. At the movie theater stock's average daily trading volume, it would take the shorts nearly eight days to buy back all of their remaining bearish bets.

 

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