iRobot Stock's Dramatic Rise Could Be Far From Over

Options traders have preferred puts over calls for iRobot stock

Sep 6, 2017 at 8:07 AM
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Roomba maker iRobot Corporation (NASDAQ:IRBT) has extended its uptrend in 2017, up 65% year-to-date, and tacking on a whopping 143% year-over-year. The stock recently scored a "triple play" during its July 25 earnings report by posting beats on earnings and revenue, while also raising its guidance. With IRBT in the early stages of a bounce from its 100-day moving average, now is an ideal time to bet on another leg higher, as previous pullbacks to this trendline in September 2016 and February-March 2017 proved to be good buying opportunities.




Sentiment among analysts is overwhelmingly bearish. All six of the brokerages covering the stock rate it a "hold" or "strong sell." This indicates there is plenty of room for upgrades that could push the stock even higher. IRBT's average price target is $90.50, indicating the stock, currently trading at $96.63, has serious upgrade potential.

In the options pits, traders have been preferring puts. This is according to IRBT's Schaeffer's put/call open interest ratio (SOIR) of 2.16, which ranks in the 96th annual percentile. In other words, should IRBT continue its trek higher, it could lead to an unwinding of these bearish bets. Furthermore, IRBT has consistently exceeded options traders' volatility expectations over the past year, as evidenced by the stock's Schaeffer's Volatility Scorecard (SVS) of 95.

After a 5% increase during the last reporting period, short interest now accounts for a healthy 13.9% of the stock's total available float. It would take nearly six days for the shorts to fully cover their positions, at IRBT's average daily trading volume. This indicates the stock is ripe for a potential short squeeze, which could provide even more tailwinds for the tech stock.

Lastly, our recommended call has a leverage ratio of 5.0, and will double in value on a 21.1% rise in the underlying equity. 

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this IRBT commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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