Trade Postmortem: athenahealth, Inc (ATHN)

Breaking down our winning options trade on athenahealth, Inc (ATHN)

Jan 6, 2017 at 10:15 AM
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Our recommended athenahealth, Inc (NASDAQ:ATHN) weekly 1/6 103-strike call delivered a 100% gain for subscribers of Schaeffer's Weekly Options Countdown. Below, we'll take a look at what made the ATHN trade so attractive, and how the stock performed following our recommendation.

On Dec. 14, ATHN raised its 2017 guidance, resulting in a gap higher the next morning. The shares subsequently consolidated lower around the $105 level -- an area that had served as resistance in November, but appeared to be switching to a more supportive role.

Further setting up the ATHN trade for success were a number of contrarian indicators. To begin, short interest had been stair-stepping lower since peaking in August 2015. This suggested fundamental shorts may have been taking their profits. But with short interest still accounting for nearly 18% of ATHN's float, we thought additional covering remained a possibility in the new year, as investors who had delayed profit-taking for tax reasons would finally be free to exit their positions.

Also, options traders were very put-skewed, based on the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.36, which ranked in the 84th annual percentile. This set up ATHN to rally on a capitulation among option bears.

Following our recommendation to subscribers on Jan. 1, ATHN immediately headed higher. In particular, a round of positive analyst attention boosted the shares. After a strong start to 2017, both Pacific Crest and KeyBanc upgraded the stock's rating to "overweight" from "sector weight," with the latter also reiterating its price target of $140 -- in roughly six-month-high territory. The following day, Jan. 4, ATHN jumped another 5.6% to hit its target.

In other words, less than 48 hours after Weekly Options Countdown subscribers entered the position, our recommended call reached its target profit of 100%. Below is a chart of athenahealth, Inc (NASDAQ:ATHN) in the months leading up to our recommendation, as well as its quick trip higher in the days that followed.


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