Sector Tailwinds Could Guide United Technologies Stock to Higher Highs

Options traders are put-heavy towards UTX stock

Sep 26, 2017 at 8:24 AM
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United Technologies Corporation (NYSE:UTX) made headlines earlier in September after striking a $30 billion deal to acquire Rockwell Collins. In addition, the U.S. Senate passed a fiscal 2018 defense policy bill, worth nearly $700 billion. Pending approval from President Trump, the bill could give the defense sector a boost.

UTX has backpedaled from its mid-July peak just shy of $125, but the pullback appears to be over following a tidy 10% correction. We're targeting a rally back up to the neighborhood of its July high, which stands about 50% above last year's low.

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Analyst sentiment remains pessimistic. Of the 13 brokerages covering UTX, eight rate the stock a "hold" or "strong sell," which shows that there is plenty of room for upgrades that could push the stock higher. Furthermore, short interest has increased by 40% during the last two reporting periods. This represents a major source of buying power that could enter the market.

UTX's Schaeffer's put/call open interest ratio (SOIR) of 1.58, ranks in the 98th annual percentile. This suggests near-term options traders have rarely been more put-biased during the past 12 months.

Lastly, our recommended call has a leverage ratio of 10.2, and will double in value on a 9% rise in the underlying equity.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this UTX 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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