This 2018 10-Bagger Has Options on Sale

Intelsat shares hit a record high yesterday

Oct 18, 2018 at 11:36 AM
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Intelsat SA (NYSE:I) has had a jaw-dropping run in 2018, up nearly 1,000% year-to-date. What's more, the shares hit a record high of $37.70 yesterday, but were last seen down 1.4% to trade at $36.96. Today's pullback may have been in the cards, considering I stock's 14-day Relative Strength Index (RSI) closed last night 77 -- deep in overbought territory.

intelsat stock daily chart oct 18

It looks as if options traders have been positioning for more upside, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 1.42 calls for each put over the last two weeks.

Drilling down on short-term strikes, the December 40 call has seen a notable rise in open interest over the past two weeks. Data from Trade-Alert suggests a number of positions were bought to open for a volume-weighted average price of $5.33. If this is the case, breakeven for the call buyers at the close on Friday, Dec. 21 -- when the options expire -- is $45.33 (strike plus premium paid).

While traders could be using these calls to speculate in a traditional bullish manner, it's also possible short sellers are initiating an options hedge. Despite falling more than 44% from a mid-June record high, there are still 6.79 million shares sold short -- representing 12% of Intelsat's available float.

Whatever the reason, I's short-term options are attractively priced at the moment, historically speaking. Intelsat's Schaeffer's Volatility Index (SVI) of 99% ranks in the 8th percentile of its annual range, meaning short-term options are pricing in relatively low volatility expectations at the moment.

Plus, the security has consistently rewarded premium buyers over the past year. I's Schaeffer's Volatility Scorecard (SVS) of 98 (out of a possible 100) indicates the stock has tended to make outsized moves on the chart, relative to what the options market was anticipating.


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