Match Group stock's post-earnings bull gap helped traders lock in a quick profit
Subscribers to Schaeffer's Weekend Trader Alert service just scored a 100% profit with the Match Group Inc (NASDAQ:MTCH) December 70 call option recommendation. 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, July 14. At the time, dating service MTCH had been an outperformer on the charts -- up 70% year-to-date, and once again nearing record-high territory. With familiar support sitting just below at the rising 50-day moving average, it appeared to be an attractive time to buy calls.
While short interest on MTCH had decreased in recent reporting periods, it still accounted for more than 38% of the stock’s total available float. At the security’s average pace of trading, it would take over 11 days for shorts to cover their bearish bets. We anticipated bigger tailwinds for Match stock, should shorts continue to cover.
The equity also looked overdue for bull notes. Eight out of 14 covering firms sported a tepid "hold" recommendation, while the stock’s average 12-month price target came in well below where MTCH was trading at the time. In simpler terms, there was plenty of room for a fresh round of upgrades and/or price-target hikes.
Plus, short-term options were relatively cheap at the moment. This was according to the stock's Schaeffer's Volatility Index (SVI) of 36%, which ranked in the bottom 5th annual percentile.
Following our recommendation in mid-July, MTCH chopped higher atop its 50-day moving average. However, this past Tuesday, Aug. 6, Match reported a second-quarter earnings beat and hiked its third-quarter revenue forecast, which was met with an onslaught of bullish brokerage notes. This sent the shares gapping to a fresh record high of $95.31 on Wednesday, Aug. 7 -- allowing subscribers to lock in a 100% profit on the December 70 call in under four weeks.
