Reynolds American, Inc. (RAI) short-term options are currently pricing in low volatility expectations
Tobacco giant
Reynolds American, Inc. (NYSE:RAI) popped out of the gate this morning to an all-time high of $52.25, after
The Telegraph released a story on Saturday suggesting British American Tobacco -- which already holds a 42% stake in RAI -- is
considering a complete takeover of its American peer. However, CNBC's David Faber has since squashed the rumors, saying there have been no talks of such a deal. RAI stock was last seen 0.4% lower at $51.48.
Still, RAI has been a technical juggernaut, as the shares have enjoyed nearly uninterrupted gains since their 2009 bottom. During the past 12 months, the stock has added almost 46%, and has outpaced the S&P 500 Index (SPX) by nearly 15 percentage points in the past 60 sessions.
Call buyers are certainly betting on more upside. RAI's 10-day
call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 5.69, topping 76% of all readings from the past year. Today, options traders have been rushing to RAI -- especially on the call side of the fence, where intraday volume is at 21 times typical levels.
Now appears a good time to buy premium on RAI. The stock's
Schaeffer's Volatility Index (SVI) sits at 22%, putting it a mere 1 percentage point from an annual low. In other words, premium on RAI's near-term options are extremely muted, from a volatility perspective.
It's also worth noting that Reynolds American, Inc. (NYSE:RAI) could further benefit from bullish analyst attention. For starters, three brokerage firms on Wall Street still
rate the shares a "hold" or "sell," despite their technical prowess. Plus, RAI's average 12-month price target sits just above at $54.13, meaning the stock could be due for price-target increases.
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