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Playbook: Software Stock Can Run Down Overhead Levels

OKTA has a lot of pessimism surrounding it that could unwind

CMT, Senior Market Strategist
Jan 18, 2023 at 8:50 AM
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Below is an excerpt from this yesterday's episode of Schaeffer's Playbook of the Week, featuring Schaeffer's Senior Market Strategist Matthew Timpane. Below, Matthew makes a bullish case for software stock Okta Inc (NASDAQ:OKTA).

"OKTA, a major player in two-factor authentication, had a powerful post-earnings gap back in December and has since been in a flaying pattern, per the chart below. It broke out of this downtrend and then successfully retested to start 2023, pulling right back into a volume shelf, making it quite the interesting setup.

We want to see this move above $70, and if so, we’ll get aggressive. If it gets above $70, we have quick levels it can run down. You have the $78-$77 area, and then all the way up to $90. However, keep an eye on the 200-day moving average that OKTA has to contend with as the trade evolves. 

OKTA PLBK

At last check, the shares are about to break that $70 pivot level, which is a key gamma strike. The stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) is 1.14, a put-heavy number that has typically led to rallies. Analyst ratings came in at 15 of 33 sporting "hold" or "strong sell" ratings, so there’s still plenty of room for upgrades. We’ve seen a lot of downgrades in the last two years as the growth story ended. You didn’t see these high-flyers in 2022.

OKTA's 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 0.82, so while calls still outflank puts on an absolute basis, the closer the number is to 1.0, the more prevalent put traders are. Digging deeper, the 65-strike is forming a put wall for support that we'll use as a stop.

Options are comparatively cheap right now compared to the last year, per the Schaeffer's Volatility Index (SVI) of 57% that ranks higher than just 13% of readings from the past year. Furthermore, its Schaeffer's Volatility Scorecard (SVS) is rising and checks in at 72 out of 100, meaning OKTA has exceeded option traders' volatility expectations during the past year."

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