Chegg Stock's Red-Hot Rally Could Have Legs

The stock boasts cheap options to boot

Deputy Editor
Aug 13, 2020 at 3:02 PM
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The shares of education technology company Chegg Inc (NYSE:CHGG) are on this rise this afternoon, up 4.4% at $77.66, just a few days off their August 7, all-time high of $89.82. While the stock did suffer a sharp pullback earlier this week, breaching its formerly supportive 20-day moving average, a historically bullish trendline just below here could move the security back toward its record highs.

Specifically, Chegg stock just came within one standard deviation of its 40-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, six similar signals have occurred during the past three years. Chegg stock was higher one month after 67% of these signals, averaging a one-month return of 6.1%. A similar move, from the security's current perch, would put CHGG just above the $82 mark, which is home to the stock's higher lows. 

CHGG Chart August 13

Meanwhile, the options pits have been incredibly bullish of late. In fact, over the last two weeks, 26,000 calls have been exchanged. That's nearly six times the amount of puts -- clocked in at 4,370 -- that have been traded in the same span of time. Short interest has continued its drop since we last checked in on CHGG, too. Down 2.5% in the last two-week reporting period. 

Those looking to bet on CHGG's next move might want to consider options. The equity's Schaeffer's Volatility Index (SVI) of 55% stands higher than just 22% of all other readings from the past 12 months. This implies options traders have been pricing in relatively low volatility expectations at the moment. 

 

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