Subscribers to our Weekend Trader Series service recently doubled their money with the Invesco Ltd. (NYSE:IVZ) January 2019 23-strike put. We'll take a closer look at why IVZ stock remained on our bearish radar, and how another winning options trade unfolded.
When we entered the position on Monday, Nov. 5, the investment management concern was having a 2018 to forget. The shares had shed 40% year-to-date, and recent rally attempts were stymied by their 40-day moving average -- admittedly off the radar of most traders, but a trendline that's been "money" as far as timing new put positions. So, when IVZ traded back to this moving average once again, our traders identified a low-risk, high-payoff trading opportunity in terms of betting on downside in the shares.
Our conviction level was higher when eye-balling the short interest trend, as it was clearly evident that shorts were using bounces as opportunities to "press" their bets. Short interest had increased by 27% in the two most recent reporting periods, yet only 4% of the stock's total available float was dedicated to these bearish bets. This indicated there was ample room for more speculators to short the stock.
Surprisingly, analysts did not share the bearish sentiment, with 60% of the brokerages covering IVZ maintaining "strong buy" ratings. A round of downgrades would likely create headwinds for the stock.
Plus, while near-term implied volatility was relatively high -- likely due to a some company events that were scheduled in November -- volatility expectations were dramatically lower when extending out to a longer time frame. This indicated our recommended January puts were attractively priced on a relative basis.
After our put recommendation, Invesco stock continued to flounder under its 40-day trendline, due in part to pressure from shorts. Specifically, short interest peaked at 19.43 million shares in the Nov. 15 reporting period. While these bearish bets declined almost 26% in the most recent reporting period, the equity's inability to capitalize on this burst of buying power speaks to its underlying weakness.
Plus, these struggles were exacerbated by several overdue price-target cuts throughout November and December. IVZ hit an intraday low of $18.49 on Thursday, Dec. 6, allowing our subscribers to lock in a 100% profit in roughly a month.
