This Outperforming Cloud Stock Has Cheap Options

NOW stock remains heavily shorted, despite its impressive run up the charts

by Research Dept.

Published on Nov 21, 2017 at 11:04 AM
Updated on Jun 24, 2020 at 10:16 AM

ServiceNow Inc (NYSE:NOW) has been on a roll this year, adding 70% in 2017. The cloud stock has pulled back after hitting an all-time high of $129.56 on Oct. 23, but this pullback has been contained by the shares' rising 40-day moving average, which has served as support since mid-July. As such, it looks like a prime time to bet on the security’s next leg higher.

WT now nov 17

 

Despite NOW's surge up the charts, short sellers have been flocking to the equity. The 11.22 million shares sold short represents a 90% increase in short interest from May, and a healthy 7% of NOW's total available float. It would take six days to fully cover these positions, at NOW's average daily trading volume. This is a major source of buying power that could enter the market and result in tailwinds for the stock.

In the options pits, the November 130 call, which was home to peak open interest, recently expired, removing a potential technical hurdle. Furthermore, it's a good time to target near-term NOW options. Its Schaeffer's Volatility Index (SVI) of 27% ranks in the low 30th percentile of its annual range, meaning volatility expectations are unusually muted for short-term options. Lastly, our recommended call has a leverage ratio of 7.0, and will double in value on a 13.7% rise in the underlying shares.

Subscribers to Schaeffer's Weekend Trader Alert options recommendation service received this NOW 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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