Buy Puts to Bet on a Lumentum Pullback

LITE short sellers have been accumulating positions

Managing Editor
Nov 14, 2019 at 12:57 PM
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Shares of Huawei supplier Lumentum Holdings Inc (NASDAQ:LITE) hit a 14-month peak of $68.25 earlier, and were last seen trading near $68.23. The stock has been climbing higher over the long term, but history suggests it might be time to position for a LITE pullback. 

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other instances when Lumentum Holdings stock was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th annual percentile or lower -- as it the case with LITE's current SVI of 37%, in the 2nd percentile of its 12-month range. 

The data shows that one month after those two previous signals, LITE was down 10.5%, on average, with not a single one of its returns positive. From its current perch, another drop of this magnitude would put the stock near the $60 mark, and to levels not seen since a late-October post-earnings bull gap.

What's more, the December 60 put is popular today, where over 700 contracts have been traded so far today. It looks like new positions are being purchased here for a volume-weighted average price of $0.82, which would make breakeven for the put buyers $59.18 (strike less premium paid).

Short sellers have been targeting LITE stock, too. These bearish bets rose 10.6% in the most recent reporting period, and now represent 8.9% of Lumentum stock's available float. The security could see pressure, should this trend continue.

lite stock daily price chart on nov 14


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