Should Options Buyers Consider United Technologies Corporation (UTX)?

The options market is pricing in low volatility expectations for United Technologies Corporation (NYSE:UTX)

by Josh Selway

Published on May 17, 2016 at 3:19 PM
Updated on May 17, 2016 at 3:19 PM

Aerospace giant United Technologies Corporation (NYSE:UTX) is down 1.7% at $100.11 -- struggling alongside several other Dow stocks -- after the company reaffirmed its full-year guidance. The company also said it's "cautiously optimistic on China," and that there's room for consolidation in the elevator manufacturing sector. The stock is down 15.5% in the past 12 months and is testing its mettle atop the round-number $100 level. And while call options are crossing at six times the average intraday pace today, UTX's longer-term trend has been toward put options.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the security's 10-day put/call volume ratio of 1.10 ranks higher than 72% of all comparable readings taken in the past year. In fact, put open interest on the stock currently ranks in the 94th annual percentile.

Plus, UTX's Schaeffer's put/call open interest ratio (SOIR) 1.30 is an annual high. In other words, options traders have been extremely put-skewed extreme toward UTX options expiring in three months or less.

No matter which side you take, UTX's Schaeffer's Volatility Index (SVI) of 17% lands in the 18th annual percentile -- suggesting it's a good time to buy premium, as the stock's near-term options are pricing in low volatility expectations. Additionally, the stock's Schaeffer's Volatility Scorecard (SVS) is docked at 98, indicating the stock has tended to made moves bigger than what the options market has priced in.

While options traders have been pessimistic, many short sellers are calling it quits. During the two most recent reporting periods, short interest on United Technologies Corporation (NYSE:UTX) fell by 17.7%. However, the 18.1 million shares still sold short represent nearly a week's worth of buying power, at UTX's average daily volumes. 

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