Why Now's the Time to Go Long on VMware Stock

Low expectations surround outperforming VMware Stock

May 2, 2017 at 7:35 AM
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IT stock VMware, Inc. (NYSE:VMW) has been rising fast on the charts over the past year, and currently sports a year-over-year advance of more than 65%. The shares are now breaking higher from a recent period of consolidation to trade above their 2015 highs, and with significant call open interest at overhead strikes expiring in the weekly 4/28 series, it appears to be an excellent opportunity to go long on the outperforming security.


Analysts have been slow to take notice of VMW, too. At the moment, 15 of the 28 analysts that cover the stock rate it just a "hold." It wouldn't be surprising to see at least a few of these bears upgrade their ratings, which would provide an extra spark for VMW.

The shares could also stand to benefit from a short-squeeze situation. Short interest accounts for a whopping 37% of the stock's float, which would take more than a month to buy back, based on average daily volumes.

Near-term VMW options are also pricing in unusually low volatility expectations at the moment. This is based on the equity's Schaeffer's Volatility Index (SVI) of 17%, ranking in just the 3rd annual percentile. Plus, our recommended call option on VMware, Inc. (NYSE:VMW) has a leverage ratio of 10, meaning it'll double in value on a 9.3% gain in the underlying shares.

Subscribers to Schaeffer's Weekend Trader services received this commentary on April 30. 

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