Options Traders Swarm Surging Seagate Technology PLC (STX)

Seagate Technology PLC (STX) options are flying off the shelves, as the shares continue to climb

by Kirra Fedyszyn

Published on Sep 9, 2016 at 11:55 AM
Updated on Jun 24, 2020 at 10:16 AM

Data storage concern Seagate Technology PLC (NASDAQ:STX) is adding to its recent hot streak, up 1.8% at $36.98 on news activist hedge fund ValueAct has taken a 4% stake in the company. Related to this, ValueAct will receive a non-voting "observer board" position. This follows some upbeat brokerage attention earlier this week, and has the stock's options flying off the shelves at an unusual pace.

Specifically, STX puts and calls are both trading at two times their usual intraday pace, with overall options volume running in the 95th percentile of its 12-month range. Most popular is the March 2017 37-strike put, where it looks like traders are buying to open new positions. Buyers of the put are betting on STX slumping below $37 by expiration, still more than six months away. Elsewhere, the back-month October series has seen quite a bit of action at the 36, 39, and 40 calls.

Buyers of STX's near-term options are getting a particularly good deal right now. The stock's 30-day at-the-money implied volatility of 36% sits in the 11th percentile of its annual range, and its Schaeffer's Volatility Index (SVI) of 32% is lower than 92% of the past year's readings. That means premium on near-term strikes is pricing in relatively low volatility expectations. At the same time, the stock's Schaeffer's Volatility Scorecard (SVS) of 99 indicates the options market has consistently underpriced STX's ability to make outsized moves over the past 12 months.

Overall, call buyers have dominated in STX's options pits of late. The equity holds a 10-day call/put volume ratio of 4.30 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- higher than 91% of all readings taken in the last year.

However, short interest on the security is elevated, representing 12% of STX's total float. At the stock's typical daily volume, it would take nearly seven sessions to cover these bearish bets -- suggesting some recent call buyers may actually be short sellers looking for a hedge against continued gains in the shares. Regardless, should shorts begin abandoning their bearish stock positions, STX could get an extra boost on the charts.

There's plenty of room for future upgrades and price-target hikes to send STX higher, as well. In fact, 17 out of 21 analysts currently rate the stock a "hold" or worse, and the consensus 12-month price target of $32.74 sits at a discount to STX's current trading levels.

As alluded to, the stock's recent technical performance suggests it deserves more love from traders and the brokerage bunch. Seagate Technology PLC (NASDAQ:STX) has been climbing higher since its four-year low of $18.42 in May, more than doubling in value. Plus, the shares broke out above the $34 area earlier this week, after struggling around that level for much of August.

STX Daily Chart Sept 9

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