Surging Progressive Stock Ripe for a Short Squeeze

The stock's short-term options are cheap at the moment

Jun 5, 2018 at 10:13 AM
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Insurance concern Progressive Corp (NYSE:PGR) has been on a tear over the last 12 months, adding more than 45%. More recently, the stock broke to a new record high late last month following a sharp bounce off its 40-day moving average. However, regardless of its technical tenacity, the security remains surrounded by pessimism – suggesting now could be an opportune time for contrarian bulls to strike.

WKEND PGR with 40MA

 

For starters, Progressive stock seems overdue for analyst upgrades. Despite outperforming the stock market over the past year, the equity boasts just six "buy" recommendations, compared to 10 "hold" or worse ratings. Further, PGR's average 12-month price target comes in at $64.87, which is roughly in line with the stock's current price.

And despite Progressive's rapid ascent, short sellers continue to pile on. In fact, short interest surged nearly 30% in just the past two reporting periods, and now accounts for more than 8.6 million PGR shares. As the equity extends its uptrend, a short squeeze could add fuel to its fire.

Plus, there's a heavy accumulation of put open interest at the underfoot 60 strike in both the June and July series of options. This could create an added layer of support for the shares, as the hedges related to these bets unwind over the next two months.

It's an attractive time to buy premium on PGR stock, too. The security's Schaeffer's Volatility Scorecard (SVS) stands at 81 out of a possible 100. This high ranking shows that the shares have tended to make outsized moves over the past year, relative to what the options market has expected -- a boon to potential premium buyers. What's more, Progressive's Schaeffer’s Volatility Index (SVI) of 19% is in the bottom 27% of its annual range, 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 PGR 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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