Norfolk Southern Stock Prime Target for Option Bulls

NSC stock is heavily shorted

Research Dept.
Sep 5, 2018 at 10:45 AM
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Transportation stock Norfolk Southern Corp. (NYSE:NSC) has been trending higher since early 2016, and is outperforming the broader market with its 20% year-to-date lead. The company reported solid earnings late last month, and since touching a record high on Aug. 29, NSC stock has formed a bullish doji pattern around its 20-day moving average. Against this backdrop, now may be the perfect time for bullish traders to get in before the stock’s next leg higher.

WKALT NSC Chart with 20MA

 

Despite its technical outperformance, short interest levels have continued to rise. Specifically, during the most recent reporting period, the transport stock saw short interest grow 84%, and these bearish bets have now risen 172% year-to-date. These bears may soon begin to cover, which could provide tailwinds for the equity.

Digging into options, the equity's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.97, ranking in the 83rd percentile of its annual range. This indicates that short-term options players have been more heavily skewed toward puts over calls on NSC just 17% of the time during the past year.

Analyst upgrades may also be in store for Norfolk Southern stock. Currently, 10 of the 19 firms covering NSC sport "hold" or worse recommendations. Likewise, the consensus 12-month price target of $175.19 is just a stone’s throw from Friday’s close, leaving the door open for potential price-target hikes.

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