Calls Catch Fire as Splunk Inc (SPLK) Stock Rallies

Splunk Inc (SPLK) is enjoying a boost from the broad-market rally

Jul 12, 2016 at 3:32 PM
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Splunk Inc (NASDAQ:SPLK) is enjoying broad-market tailwinds today, up 2.7% at $58.93, just squeaking back into positive year-to-date territory. As the stock climbs the charts, things are also heating up in the options pits, where SPLK calls are changing hands at breakneck speeds.

Jumping right in, roughly 13,000 SPLK calls have traded so far -- 12 times the expected volume for this point in the day -- compared to just 521 puts. In fact, call volume is running in the 99th percentile of its annual range. The vast majority of this action is happening at the stock's August 65 call, with roughly 10,500 contracts on the tape. It appears traders are likely buying to open this out-of-the-money call, anticipating SPLK will continue its rally through Friday, August 19, when the back-month option expires.

Option buyers could be getting an especially good deal today, too. According to SPLK's Schaeffer's Volatility Index (SVI) of 38% -- in the low 7th percentile of its annual range -- and its 30-day at-the-money implied volatility of 39% -- lower than 82% of the last 12 months' readings -- the stock's near-term options should be exceptionally well priced, from a volatility standpoint.

While today's action takes the trend to an extreme, a preference for calls is nothing new among SPLK options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.29 ranks higher than 69% of the past year's readings.

Near-term traders have been even more call-skewed lately, per SPLK's Schaeffer's put/call open interest ratio (SOIR) of 0.55. Not only does this reading show call open interest nearly doubling put open interest among options set to expire in the next three months, it also sits lower than 92% of the all readings in the last 52 weeks.

Outside of the options pits, SPLK has seen short interest declining in recent months -- down 14.5% over the two most recent reporting periods, in fact. But these bearish positions still account for 8.8% of the stock's float, or more than a week's worth of trading, at SPLK's typical daily pace, suggesting the stock could get another boost, should short sellers continue to abandon their positions.

Optimism toward SPLK runs high among the brokerage bunch, though. Of the 26 analysts following the security, 22 call it a "buy" or better, without a single "sell" on the books.

Technically speaking, SPLK -- though still lower year-over-year -- has nearly doubled in value since hitting a three-year low of $29.85 in February. The shares recently pulled back to the $50 area, which served as resistance throughout April, but quickly bounced higher. The next roadblock appears to be the $60 mark, which has been shutting down the stock's rallies for more than a month. In fact, Splunk Inc (NASDAQ:SPLK) hasn't closed above this price level since last December.

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