We Just Doubled Our Money on Hasbo's Impressive Bull Gap

It took just over five weeks for traders to score a 100% win on HAS calls

Emma Duncan
Aug 1, 2019 at 1:38 PM
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Subscribers to Schaeffer's Weekend Trader Series options recommendation service just scored a 100% profit on the Hasbro, Inc. (NASDAQ:HAS) October 100 call trade. Below, we'll explain the factors that went into this options trade hitting its expected target, leaving speculators with a big win.

We initially recommended the call to subscribers on Sunday, June 16. At the time, toymaker HAS had gapped higher after a positive earnings surprise in April, and after a subsequent pullback, the stock looked to be resuming its upward momentum. The equity had already added 12.9% so far in June, barreling past the $100 level to trade at year-to-date highs. In fact, HAS stock was within striking distance of taking out its September peak, and we felt it was the opportune time to buy calls.

Despite severely outperforming the S&P 500 year-to-date, HAS remained plagued by pessimism. The stock’s rally on the charts had coincided with an increase in short interest, as these bearish bets had jumped 5.9% during the past two reporting periods. Short interest represented nearly eight sessions’ worth of pent-up buying demand, at the equity’s average pace of trading -- which was ample fuel for a short squeeze to drive the  stock even higher.

In the same skeptical vein, five of 12 analysts following HAS maintained a tepid "hold" opinion, and the consensus 12-month price target of $107.50 represented a premium of less than 1% to the security’s current perch. This left the door wide open for analyst upgrades or price-target hikes to lure more buyers to the table.

Meanwhile, options traders had bought to open more than three Hasbro puts for every call during the previous two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 10-day put/call volume ratio of 3.41 was in the 84th percentile of its annual range, pointing to more aggressive-than-usual put buying over call buying of late. An exodus of option bears could have become a boon for HAS.

Finally, the stock’s Schaeffer’s Volatility Index (SVI) of 24% stood in just the 12th percentile of its annual range. In other words, this suggested HAS’ near-term options were pricing in relatively modest volatility expectations.

Following our recommendation in mid-June, Hasbro stock steadily made its way higher, eventually bouncing off the supportive 30-day moving average and gapping higher -- again -- after the company's second-quarter earnings beat. By Friday, July 26, HAS had reached an all-time high of $124.33, allowing subscribers to lock in a 100% profit on our recommended October 100 call in just over five weeks.

Daily HAS with 30MA and Entry Exit Dates


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