Top Real Estate Stock Pick for Call Buyers

Short-term bets on the stock have rarely priced in lower volatility expectations

Sep 24, 2019 at 10:30 AM

Real estate investment trust Realty Income Corp (NYSE:O) has been locked in a steady trend higher on the charts. The stock is up about 33% year-over-year, and more than 20% on a year-to-date basis. Last week, the stock gapped higher on news of a dividend hike, which pushed O above the $75 level -- home to double the stock's 2014 lows, and a former layer of resistance. With plenty of pessimism available to unwind and push O even higher, it's an ideal time to buy call premium on the stock.

o daily stock chart 0920

For example, there's been a big recent spike in the 20-day buy-to-open put/call ratio for O, which could have bullish implications. A previous spike of similar magnitude back in late September 2018 preceded a big rally in the shares.

Analysts are also crowded on the sidelines. There are no fewer than 11 tepid "hold" ratings on O, compared to only four "buys." This skeptical configuration leaves plenty of room for future bull notes as the price action continues to impress.

Now is a great time to pick up O call options, too. The equity's Schaeffer's Volatility Index (SVI) of 16% arrives in the 17th annual percentile, as short-term bets on the stock have rarely priced in lower volatility expectations. The leverage ratio on our recommended call is 10.9, and the option will achieve its target profit of 100% on an 8.6% gain in the stock.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this O commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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