Analyst: This Stock's Pullback an 'Early Christmas Gift'

An investor is urging Sears to consider going private

Managing Editor
Dec 7, 2017 at 2:52 PM
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U.S. stocks are trading higher, thanks to outperforming tech stocks. Among the names making big moves are burger chain Shake Shack Inc (NYSE:SHAK), semiconductor company Lam Research Corporation (NASDAQ:LRCX), and retail giant Sears Holdings Corp (NASDAQ:SHLD). Here's a quick look at what's moving shares of SHAK, LRCX, and SHLD.

SHAK Shorts Feeling the Squeeze

Shares of Shake Shack are soaring after Morgan Stanley upgraded the burger chain to "equal weight" from "underweight," and raised its price target to $41 from $34. SHAK was up 8% at $45.31, at last check, just off a fresh two-year high of $45.53, and has rallied nearly 47% in the past three months.

An enormous short squeeze can be partially credited towards the rise in Shake Shack stock's recent gains. SHAK's short interest rose over 12% during the past two reporting periods, and now represents a whopping 70% of the stock's total available float. There's still plenty of gas in the tank, too. At Shake Shack stock's average daily trading volume, it would take almost 13 days for the shorts to cover the remaining bearish bets.

Furthermore, SHAK's Schaeffer's put/call open interest ratio (SOIR) of 0.98 ranks higher than 80% of comparable readings taken in the past year. This means short-term options traders have rarely been more put-heavy during the past 12 months. A mass exodus of pessimist in the options pits could also add fuel to the security's fire.

Instinet: LRCX Dip an "Early Christmas Gift"

Lam Research is one of the S&P 500 Index's (SPX) top stocks today, after receiving an upgrade at Instinet to "buy" from "neutral." The analysts said the stock's recent pullback is "an early Christmas gift," particularly for longer-term investors. Plus, Instinet opined that Lam Research will be a major beneficiary of tax reform. LRCX was up 3% at $189.61 at last check, bouncing from recent support at its 20-week moving average.

Lam Research stock could also benefit from a short squeeze, as it would take about six sessions to repurchase those pessimistic positions, at LRCX's average pace of trading. What's more, the equity's Schaeffer's Volatility Scorecard (SVS) of 93 suggests the semiconductor stock has consistently rewarded premium buyers over the past year, relative to what the options market had priced in.

Investor Urges Sears to Go Private

Shares of SHLD are soaring after the retailer received a push from Memento SA to consider going private. The investor manager also requested Sears "effectively address the urgent problem of naked short selling in its shares by establishing sophisticated internal controls and seeking appropriate regulatory action." The stock was last seen up more than 9% at $4.53 -- a 20% rebound from its recent Nov. 15 record low. However, SHLD is still down 52% year-to-date.

In the options pits, traders have been unusually bullish. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Sears stock with a 10-day call/put volume ratio of 2.16, ranking in the 93rd percentile of its annual range. This suggests that calls have been bought to open over puts at a faster-than-usual clip during the past two weeks.

Echoing this, the stock's SOIR of 1.58 ranks in just the 12th percentile of its annual range, meaning  short-term calls are preferred over puts by an unusually wide margin.


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