Smith & Wesson Holding Corp (SWHC) Sees Surge In Pre-Election Call Buying

Smith & Wesson Holding Corp (NASDAQ:SWHC) options traders have shown a preference for calls over puts ahead of next Tuesday's U.S. presidential election

Nov 4, 2016 at 2:24 PM
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Ahead of next Tuesday's U.S. presidential election, gun stock Smith & Wesson Holding Corp (NASDAQ:SWHC) is trading higher -- up 4% at $27.76, and on track for its highest weekly close since September. Boosting SWHC stock is news the company's Battenfield Technologies subsidiary will purchase survival gear specialist UST Brands for $32.3 million in cash. Meanwhile, in the options pits, SWHC volume is trading at 1.5 times the average intraday pace, with 2,068 calls and 1,109 puts on the tape at last check.

From a broader sentiment perspective, call buying has been popular in SWHC's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 4.49 ranks higher than 85% of all comparable readings taken in the past year.

Given SWHC's impressive technical backdrop, it's likely that most of this action is a result of traditional options bulls betting the gun stock will extend its upward trajectory. However, considering nearly 17% of the security's float is sold short, it's possible short sellers have been hedging their bearish bets against any additional upside.

Regardless, now appears to be an opportune time for options buyers to strike on SWHC stock. For starters, its Schaeffer's Volatility Index (SVI) of 39% ranks in the 17th annual percentile, meaning low volatility expectations are priced into the equity's near-term options. Plus, SWHC sports a Schaeffer's Volatility Scorecard (SVS) of 83, suggesting the options market has historically underpriced the stock's ability to make a big move on the charts.

As indicated, SWHC has put in a solid technical performance -- and should sentiment start to shift outside of the options pits, the stock could be ready to extend this run. The security is up almost 26% year-to-date, and a recent pullback from its mid-August all-time high at $31.19 was neatly contained by its historically supportive 200-day moving average. With the majority of analysts maintaining a tepid "hold" rating and short interest representing 6.1 times the equity's average daily pace of trading, Smith & Wesson Holding Corp (NASDAQ:SWHC) certainly stands to benefit from a round of upgrades and/or short covering.

Daily SWHC since January 2016

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