Redfin Stock Reclaims Key Trendline After Upgrade

Susquehanna raised its outlook on Redfin to "positive" from "neutral"

by Patrick Martin

Published on Jul 17, 2019 at 9:55 AM

The shares of Redfin Corp (NASDAQ:RDFN) are up 3.1% to trade at $17.64 this morning, after Susquehanna raised its outlook on the real estate name to "positive" from "neutral." The brokerage firm maintained its $23 price target on the stock, a 34% premium to last night's closing perch at $17.12.

Yesterday, Redfin stock closed below recent support at its 40-day moving average. Today's positive price action has the shares reclaiming this trendline, while bringing their year-to-date gain past 20%. Nevertheless, RDFN has a ways to go to reclaim it 2019 highs above $23, let alone its July 26, 2018, annual high of $26.01. 

Short sellers have been throwing in the towel, and a continued capitulation of these weaker bearish hands could offer tailwinds to the security. Short interest fell off by 6.6% in the two most recent reporting periods to 14.42 million shares. Still, this takes up a healthy 20% of RDFN's total available float, and 14 days' worth of pent-up buying power, at its average pace of trading.

In the options pits, calls are all the rage, despite limited absolute volume. Redfin's 10-day call/put volume ratio of 9.66 on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 90th percentile of its annual range, indicating that the rate of call buying relative to put buying has been much faster than usual. Given the amount of short interest, it's possible some of this call buying could be shorts seeking an options hedge.

Whatever the motive, options are an intriguing route right now. That's because RDFN has a Schaeffer’s Volatility Index (SVI) of 56%, which ranks in the 17th annual percentile, showing relatively low volatility expectations being priced into near-term contracts.

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