FCAU Stock Tests Chart Resistance as Options Trading Goes Wild

There's quite an unusual set-up in FCAU's options pits

Sep 12, 2018 at 1:41 PM
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Fiat Chrysler Automobiles NV (NYSE:FCAU) shares are on the rise today following a Bloomberg report that the automaker is looking to get more then $7 billion for its Magneti Marelli business. Plus, Exane BNP Paribas upgraded FCAU to "outperform" from "neutral," expecting the company to execute the plan set out by departed CEO Sergio Marchionne. As such, the stock has added 2.4% to trade at $17.42, as it tries to break above the 40-day moving average, a historically bearish trendline.

To be more specific, Schaeffer's Senior Quantitative Analyst Rocky White notes that the stock has run into this moving average two times since 2008 following a lengthy stretch below it. If you take the average of those last two run-ins with the 40-day, FCAU shares went on to fall 16.6% the following month.

While the equity is currently on pace to close above this moving average, this time around could replicate the price action seen back in late May, when it briefly topped the 40-day, only to quickly reverse course and go into a multi-month downtrend. Making matters worse, Fiat Chrysler is also staring up at the $18 region, an area that's near the site of its late-July bear gap, and that capped the most recent rally attempt last month.

fcau stock chart

There's also been very notable options trading on the auto name in recent weeks at the
 International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). FCAU's 10-day call/put volume ratio across these exchanges has skyrocketed to an absurd 67.50, right near an annual high, and that's due to heavy buying at the January 2019 19- and 22-strike calls. By buying the LEAPS, these bulls are expecting a massive rally from the shares in the months ahead.

But when you look at options traders with shorter time frames, the set-up is almost the exact opposite. That is, Fiat Chrysler's Schaeffer's put/call open interest ratio (SOIR) is 2.98, showing put open interest among contracts that expire within three months roughly triples call open interest. Plus, this reading ranks in the high 94th annual percentile, showing such an interest in short-term puts over calls is quite rare. On the whole, total open interest on the security stands at a 52-week peak, and volume is accelerated today, too.

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