Options Traders on Cloud Nine Thanks to Red-Hot Tech Stock

VEEV had just toppled a key level of resistance

by Patrick Martin

Published on May 2, 2019 at 1:30 PM

Subscribers to Schaeffer's Weekend Trader Series managed to double their money in a little more than a month with the Veeva Systems Inc (NYSE:VEEV) June 115 call. Below, we will dive into why we anticipated an upside move from the cloud specialist, and how the options trade unfolded.   

When we first recommended the call option on Sunday, March 24, the security was up 65% year-over-year, and fresh off a record high. During its climb, the stock overcame staunch technical resistance located at the $120 level, an area that was six times its initial public offering (IPO) price. With this area toppled, the odds seemed in favor of VEEV running higher on the charts.

A short squeeze seemed ready to fuel more upside for the stock, too. After increasing with the stock price for most of the year, short interest had begun to decline off its multi-year peak. However, a respectable 6 million shares were still dedicated to short interest, and that equated to more than three days’ worth of buying power, telling us there’s potential for more short-covering tailwinds.

There were six brokerage firms that had tepid “hold” recommendations in place, and the shares were trading in line with their average 12-month price target. In other words, the stage was set for upgrades and/or price-target increases.

Options looked to be an ideal vehicle to bet on more upside for VEEV, with the security's Schaeffer's Volatility Index (SVI) of 29% ranking in the 13th percentile of its annual range. This indicated short-term options were pricing in relatively low volatility expectations at that time.

Veeva Systems stock kept climbing after our late-March recommendation, logging only one weekly loss in the last five weeks. Continued short covering likely fueled buying power, with short interest plunging 20% between the March 15 through April 15 reporting periods. A mid-April price-target hike at D.A. Davidson helped VEEV pave its way to an April 29 peak at $142.40, allowing options traders to close the position and lock in a 100% profit in just six weeks.

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