Fastenal Stock Just Made Call Traders Cash Quick

Fastenal looked overdue for upgrades

by Emma Duncan

Published on Apr 25, 2019 at 2:21 PM

Subscribers to Schaeffer's Weekend Trader Series managed to double their money in just two months with the Fastenal Company (NASDAQ:FAST) August 60 call. Below, we will dive into why we anticipated an upside move from the tool specialist, and how the options trade unfolded.

When we first recommended the call option on Sunday, Feb. 24, the security was up 15.5% year-over-year, and had already added 19.8% in 2019. During its climb, the stock overcame staunch technical resistance located at the $60 level, and in early February, successfully re-tested this area as support. FAST had also gone on to trade above its October and December 2018 highs, and shrugged off a KeyBanc downgrade to "sector weight" on Feb. 12 -- which suggested rally had plenty of room left to run.

A capitulation by options bears looked as if it may fuel more upside for the stock. In the options pits, FAST's 10-day put/call volume ratio of 9.63 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranked in the 100th annual percentile, meaning puts had been bought to open over calls at an annual high clip. Digging deeper, there was a large amount of put open interest in the March and May series, specifically at the 60 strike, which could be unwound to fuel a push higher.

Meanwhile, shorts had been piling on, even amid FAST's rally. Short interest had increased by 16.3% in the last two reporting periods to 26.26 million shares, the most since April of 2018. This represented a healthy 9.2% of the equity's total available float, and 6.3 days' worth of pent-up buying power, at FAST's average daily volume. A capitulation from some of the weaker bearish hands were forecast to create tailwinds for the equity.

There was room for upgrades to draw buyers to the table, too. Specifically, nine of the 14 brokerages in coverage rated FAST a tepid "hold."

Finally, options looked to be an ideal vehicle to bet on more upside for FAST, with the security's Schaeffer's Volatility Index (SVI) of 21% ranking in the 1st percentile of its annual range. What's more, the stock had been an attractive target for premium buyers over the last 12 months, according to its Schaeffer's Volatility Scorecard (SVS) of 93 (out of a possible 100) -- which meant the shares had regularly realized greater volatility than what FAST option premiums had priced in.

Although initially Fastenal stock remained stagnant following our late-February recommendation, the shares steadily made their way higher, seeing a bull gap after announcing a two-for-one stock split on April 18. This surge paved the way to the equity's early morning peak of $71.15, this past Tuesday, April 23, allowing options traders to close the position and lock in a net profit of 100%, in just two short months.

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