How Traders Doubled Their Money With IVZ Puts

At the time of our recommendation, short-term IVZ options were fairly priced

by Lillian Currens

Published on Oct 18, 2018 at 3:31 PM
Updated on Oct 18, 2018 at 3:31 PM

Subscribers to Schaeffer's Weekend Trader Series service just scored a 100% profit in five weeks with the Invesco Ltd. (NYSE:IVZ) January 2019 26-strike put . Below, we're going to take a look back at why we were bearish on the investment management concern, and how IVZ performed after we suggested the put option. 

When we entered the position on Tuesday, Sept. 4, IVZ was stuck in a long-term downtrend on the charts, with resistance from its 20-day moving average pushing the shares to 52-week lows. The stock did try to break out of this channel via a late-July post-earnings surge, but quickly reversed lower, and at the time had shed more than 34% since its January highs.

Despite IVZ’s technical underperformance, the majority of covering analysts carried "strong buy" recommendations. Plus, the stock’s average 12-month price target came in at a 27% premium to the Aug. 31 close, indicating that a round of overdue downgrades and/or price-target cuts could pressure the security even lower.

IVZ’s short interest rose 37% during the previous reporting period, but the 10.78 million shares sold short represented just half the five-year peak. Further, shorted shares accounted for just 2.6% of the stock’s total available float, meaning there was plenty of room for bears to climb aboard and sink IVZ.

The stock's Schaeffer's Volatility Index (SVI) of 23% sat in just the 26th annual percentile, revealing low volatility expectations being priced into near-term contracts. Meanwhile, our recommended January 26 put had a leverage ratio of negative 5.7, and would double in value on a 15.5% decline in the underlying security. 

At the time of our recommendation, IVZ was trading around $24.10. By Thursday, Oct. 11, the shares were trading at six-year lows, as a handful of analysts cut their price targets, and as short interest increased to a multi-year high. This drop to $20.85 allowed our subscribers to lock in a 100% profit on the Invesco put, just weeks after our initial recommendation.

IVZ stock chart oct 18

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