China Stock Sends Up Buy Signal

BZUN call options are cheap just as the e-commerce name looks poised for a big bounce

Lillian Currens
Mar 26, 2019 at 2:53 PM
facebook twitter linkedin


Shares of the Chinese e-commerce company Baozun Inc (NASDAQ:BZUN) have slowly been making a comeback after hitting new annual lows towards the end of December. Now, the stock is up 28.4% year-to-date, and in today's session has gained 1.7% to $37.53. However, it's not too late to get in on BZUN's comeback -- the stock just pulled back to a key trendline that, if history is any indicator, could mean more upside for the stock. 

Taking a look at the charts, BZUN stock lost nearly 13% in the couple days following its earnings miss in early March, which brought the equity in touch with its 40-day moving average. Following its initial bounce from this support, the stock again on Monday closed within one standard deviation of its 40-day trendline after a lengthy period of trading above it.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, BZUN stock has flashed this signal nine other times in the past three years. The equity has finished positive one month later after each signal, with a hefty average gain of 23.5% over this time frame. From BZUN's current perch, a similar move would place the security right around $46.35 by this time next month -- an area it hasn't touched since Oct. 1. 

BZUN Chart March 26

While short sellers are starting to peel away, the 12.13 million shares sold short still represent 33.2% of the stock's available float. It would take over six days to cover these pessimistic positions at the stock's average daily trading volume, leaving plenty of room for additional tailwinds on the charts. 

A similar unwinding of pessimism among options players on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX)  could propel BZUN higher, too. Baozun currently sports a 50-day put/call volume ratio of 0.66 that stands in the 80th percentile of its annual range, indicating a bigger-than-usual appetite for puts over calls of late.

Traders may want to consider call options to speculate on the equity's short-term trajectory. BZUN's Schaeffer's Volatility Index (SVI) of 51% sits in only the 7th percentile of its annual range. From a volatility perspective, this implies that front-month options are unusually cheap at the moment.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter