Software Stock Overdue for Bull Notes

The NetApp rally could have legs

Jul 31, 2018 at 10:01 AM
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It's been an excellent year for software name NetApp Inc. (NASDAQ:NTAP) stock, which boasts a 40% lead in 2018 and a nearly 80% gain year-over-year. Earlier this month, the shares pulled back to their 40-day moving average, a trendline NTAP has bounced from twice already in 2018. Given NetApp's strong price action, alongside a surprisingly skeptical sentiment backdrop, it seems the stock is well-equipped to keep climbing.

Weekend Trader NTAP

Despite the stock's outperformance, analysts have remained on the sidelines. Of the 25 brokerages covering NTAP, 10 rate it a "hold" or "strong sell." What's more, the stock's average 12-month price target sits at $77.86, just below the stock's closing perch on Friday. This implies that the door is wide open for a round of upgrades and/or price-target hikes that could drive NTAP higher.

In addition, NTAP's Schaeffer's put/call open interest ratio (SOIR) sits at 1.68 and ranks in the 100th percentile of its annual range. This indicates that near-term put open interest outweighs call open interest by a wider-than-usual margin right now. An unwinding of these bearish bets could nudge the security higher.

Lastly, the stock's Schaeffer's Volatility Scorecard (SVS) of 95 out of a possible 100 means the stock has tended to realize greater volatility than what the options market has priced in over the past year.

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