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Short-term CHGG options are attractively priced at the moment

Managing Editor
Jan 10, 2019 at 11:52 AM
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Chegg Inc (NYSE:CHGG) has started the new year off on the right foot, having only closed lower in one of the last 10 trading days. Today, CHGG snagged a new record high of $32.99, last seen up 1% at $32.87. And if history is any guide, Chegg options traders may want to set their sights even higher in the coming months.

Specifically, the stock's Schaeffer's Volatility Index (SVI) of 45% ranks in the 17th 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, the four other times CHGG was trading within 2% of a new 52-week high while its SVI was ranked in the bottom 20th percentile of its annual range, the equity averaged a one-month gain of 8.6%, and was positive each time.

Another 8.6% jump from current levels would put the equity further into record-high territory. CHGG has roughly doubled in the last 12 months, and recent pullbacks in the fourth quarter found support at the stock's 50-week moving average. 

Weekly Stock Chart CHGG

Analyst sentiment remains evenly skewed. There are nine brokerages in coverage of CHGG, five of which rate it a "strong buy," and four of which rate it a "hold." However, the security's consensus 12-month price target of $30.10 sits below its current perch, implying a fresh round of bull notes could help nudge the stock even higher. 

And despite limited absolute volume, a capitulation from some of the weaker bearish hands could also create tailwinds for the shares. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CHGG's 50-day put/call volume ratio of 0.74 ranks in the 88th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

A short squeeze could definitely be a tailwind. The 12.46 million shares sold short represents 13% of CHGG's total available float. At the security's average daily trading volume, it would take shorts two weeks to buy back these bearish bets.

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