Bullish Options Signal Says Garmin Has Room To Run

Short-term Garmin options are a relative bargain right now

Managing Editor
Sep 21, 2018 at 11:51 AM
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Garmin Ltd. (NASDAQ:GRMN) has enjoyed a steady climb up the charts over the past six months. Earlier today, the GPS maker nabbed a fresh 10-year high of $70.75, after receiving a price-target hike from Morgan Stanley to $77 from $60. The fun could be far from over, too, as history suggests GRMN shares could be headed even higher in the coming month.

Specifically, the stock's Schaeffer's Volatility Index (SVI) of 16% ranks in the 9th percentile of its annual range. This indicates short-term options are cheap, from a volatility perspective. What's more, per data from Schaeffer's Senior Quantitative Analyst Rocky White, in the three other times GRMN was trading within 2% of a new 52-week high while its SVI was ranked in the bottom 20th percentile of annual readings since 2008, the equity averaged a one-month gain of 4.64%. Plus, all three of those returns were positive.

As alluded to earlier, it's been an excellent year for Garmin stock, which boasts an 18% lead in 2018. Since late June, the shares have been carving out a channel of higher highs, with their 40-day moving average containing any pullbacks. More recently, the equity has been on fire, turning in only one negative performance in the past 10 days.

Daily Stock Chart Garmin

Short sellers have slowly been hitting the exits in the past year, and a continued capitulation of bearish bets could provide more tailwinds for the stock. The 10.35 million GRMN shares still sold short still represent nearly 10% of the equity's total available float, and more than eight days' worth of pent-up buying power, at the average pace of trading.

More bullish brokerage notes could keep the wind at GRMN's back, too. Currently, all five brokerages covering Garmin rate it a "hold" or worse, with not a single "buy" rating to be found. Furthermore, the average 12-month price target of $65.83 sits below the stock's current perch. 

The security could also benefit from an unwinding of pessimism in the options pits. GRMN's Schaeffer's put/call open interest ratio (SOIR) of 0.97 ranks in the 100th percentile of its annual range. This shows that short-term traders have rarely been as put-skewed toward the security as they are now. 

 

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