HSBC Stock Pops Following UBS Upgrade

A sentiment shift in the options pits could boost the equity

Digital Content Manager
Oct 6, 2021 at 10:32 AM
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The shares of HSBC Holdings plc (NYSE:HSBC) are up 3% at $27.70 at last check, after the financial services concern received an upgrade from UBS to "buy" from "neutral." The analyst in coverage noted the European bank is the largest to be underweight, with the security attractively valued on near-term earnings. Plus, the firm expects 68% pre-provision profit growth for HSBC in the next four years, in addition to a share buyback of $2 billion after its third-quarter financial results. 

Analysts were hesitant towards HSBC stock coming into today. Of the five in coverage, four called the security a tepid "hold," while only one said "buy," leaving plenty of room for additional upgrades going forward.

Today's pop has the equity trading at its highest level since August, after yesterday notching its first close above the 40-day moving average in the same timeframe. The shares bounced off the $24.30 level in September, and currently boast a 34.5% year-over-year lead. 

An unwinding of pessimism in the options pits could keep the winds blowing in HSBC's favor. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 3.62 sits higher than 98% of readings from the past 12 months. This suggests long puts have been getting picked up at a quicker-than-usual pace.

Echoing this is the equity's Schaeffer's put/call open interest ratio (SOIR) of 2.36, which also sits in the 98th percentile of its annual range, indicating short-term options traders have been more put-biased than usual. 

Options traders are already starting to change their tune. Amid low absolute volume, 815 calls have crossed the tape so far today, which is three times the intraday average. Most popular is still the December 28 put, however, followed by the March 28 call, where new positions are being opened. 

What's more, HSBC options can be had for a bargain. This is per the stock's Schaeffer's Volatility Index (SVI) of 25%, which sits higher than just 20% of readings from the past year. In other words, the options market is pricing in low volatility expectations for the equity at the moment. 

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