Calls are Cheap on This Bouncing Boeing Rival

May options open interest could help reinforce technical support

May 8, 2018 at 8:34 AM
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Shares of aerospace and security concern Textron Inc. (NYSE:TXT) have been on a tear over the past two years. More recently, the stock gapped almost 7% higher the day after the company's first-quarter earnings beat late last month, and soared to a nearly 10-year high of $65.99 by April 20. And while the shares have pulled back from here, they found double-barreled support atop their 10% year-to-date level and the rising 20-day moving average.

WKALT Daily TXT with 20MA

 

Digging deeper, the May open interest configuration shows a distinct preference for near-the-money puts over calls, as evidenced by the stock's top-heavy front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.34. This could provide support for the shares, as the hedges related to these bets unwind ahead of expiration.

A continued round of short covering could also spark bigger tailwinds for TXT. Although short interest is down almost 9% from its mid-February peak, there are still 6.93 million shares sold short -- accounting for almost a week's worth of pent-up buying demand, at the stock's average daily trading volume.

Lastly, the stock's Schaeffer's Volatility Index (SVI) of 24% is in the 26th annual percentile, indicating short-term options are pricing in relatively low volatility expectations at the moment.

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