Put Open Interest Piles Up as Splunk Buy Signal Flashes

A long-term moving average says to get behind SPLK shares

Oct 31, 2019 at 12:39 PM
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Splunk Inc (NASDAQ:SPLK) is trading 1% lower today at $119.31, but the shares could be flashing a buy signal right now. Data from Schaeffer's Senior Quantitative Analyst Rocky White highlights a recent pullback to the 80-week moving average, and the previous nine meet-ups with this long-term trendline have yielded an average three-month gain of 7.9%. However, checking the options data on SPLK shows a major build-up in put open interest in the front-month November series.

splk oct 31

Jumping in, outside of the January 2020 100-strike put and the January 2020 170-strike call, puts in the November series account for the top four open interest positions on the equity. The 105-, 110-, 115-, and 120-strike puts are all heavily populated, and these positions are likely behind the security's Schaeffer's put/call open interest ratio (SOIR) of 0.89 -- a reading that's less call-skewed than normal.

However, if you look at just the past 10 days, the November 122 call saw the largest increase in open interest, with data confirming buy-to-open activity here. In other words, some bulls are still out there, expecting Splunk to rise above $122 in the coming weeks.

The software company doesn't report earnings for roughly another month, so volatility expectations remain low. For instance, the Schaeffer's Volatility Index (SVI) of 32% ranks in the 9th annual percentile.

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