Outperforming Retail Stock Sports Attractive Options

WSM could also benefit from a short squeeze

Jul 17, 2018 at 9:59 AM
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Home furnishings retailer Williams-Sonoma, Inc. (NYSE:WSM) blasted higher back in late May thanks to an earnings release that was met with widespread positivity across Wall Street -- though, still, not a single analyst recommends buying the stock. With WSM consolidating atop the supportive, round-number $60 mark and sporting a year-over-year advance of roughly 35%, traders have a chance to get behind the underloved winner before its next move higher.

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Aside from a round of much-deserved analyst upgrades, WSM could benefit from a short squeeze situation, considering about one-fourth of the total float is held by these bears. Based on average daily trading volumes, it'd take these short sellers two weeks to cover, pointing to plenty of buying power that could come in and keep the wind at the equity's back.

The unusually strong put-skew among short-term options traders could help buoy the shares on the charts. Specifically, Williams-Sonoma has a Schaeffer's put/call open interest ratio (SOIR) of 2.36, which ranks in the 83rd annual percentile. In short, speculators targeting options expiring within three months are much more put-heavy than what's normally seen.

WSM options are pricing in reasonable volatility expectations at the moment, as well. This is going by its Schaeffer's Volatility Index (SVI) of 33%, ranking in the 14th annual percentile.

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