It's Time to Bet on a Big Bounce for Shopify Stock

Near-term options looks attractively priced, too

by Emma Duncan

Published on Nov 8, 2019 at 11:40 AM
Updated on Nov 11, 2019 at 9:40 AM

Shopify Inc (NYSE:SHOP) is moving 2% higher to trade at $291.50 this afternoon, reversing course off its recent trend lower on the charts. SHOP has struggled to make gains since dropping from its Aug. 27 record high of $409.55, most recently when it surprised Wall Street with a third-quarter loss late last month. However, the equity remains 110% higher year-to-date, and history suggests more gains may be in Shopify's stock near future.

According to Schaeffer's Senior Quantitative Analyst Rocky White, the security is trading within one standard deviation of its 10-month moving average, after spending a notable amount of time above this trendline over the past 20 weeks. Similar tests of support have occurred four times since 2016, resulting in an average three-month gain of 30.4%, with 100% of the returns positive. A similar surge from current levels would put SHOP above $380 by early 2020.

Monthly SHOP with 10MA

In the options pits, Shopify stock's 10-day call/put volume ratio across the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.15 and ranks in the 62nd annual percentile. This shows a stronger-than-usual demand for long calls relative to puts in recent weeks.

Near-term options are attractively priced at the moment on the online retailer, too. The stock's Schaeffer's Volatility Index (SVI) of 48% sits in just the 28th percentile of its annual range, meaning now is an opportune time to speculate on SHOP short-term trajectory with options.

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