Call Buyers Bet on Another Shopify Earnings Win

Shopify stock will need to get past the 50-day moving average for a sustained breakout

Oct 28, 2019 at 1:55 PM
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Shopify Inc (NYSE:SHOP) is preparing to report earnings before the open tomorrow, Oct. 29, and bulls will be hoping for more of the same from the e-commerce solutions stock. That's because the shares have gained the day after earnings in four consecutive quarters, including a 7.4% jump last quarter, and a 12% surge this time last year. Sure enough, data shows that options traders are approaching SHOP bullishly ahead of the event.

Jumping in, the 10-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.29. Not only does this call buying has been more popular than put buying during the last two weeks, but the reading ranks in the 80th annual percentile, showing this type of demand for long calls over puts is rare.

The contract that saw the largest increase in open interest during this time frame was the weekly 11/1 400-strike call, so those buying to open these positions are betting on Shopify to take out the $400 by the close this Friday, when the contracts expire. With SHOP last seen trading at $324.68, the stock would need to rally more than 23% to hit $400. For the record, the options market is pricing in a 13.6% swing for tomorrow's session.

In today's action, calls are again popular, and the weekly 11/1 series is in focus. Traders are opening new positions at the 340- and 360-strike calls, while on the put side the weekly 11/1 300-strike put is seeing notable volume.

The equity traded as high as $409.61 back in August, while the subsequent pullback found support around the $300 region. For a major breakout to occur, the shares will need to take out the 50-day moving average, which swiftly blocked a breakout attempt earlier this month.

For their part, analysts at RBC believe such a move is possible, since on Friday the brokerage firm started coverage on Shopify with an "outperform" rating and $400 price target. There's potential for similar bull notes to come through, too, since the majority of covering analysts have "hold" or "sell" recommendations right now.

shop stock oct 28


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