Perfect Put Pick for Bears Right Now

The equity also looks ripe for downgrades and price-target cuts

Dec 3, 2019 at 3:01 PM
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Small business retail platform Etsy Inc (NASDAQ:ETSY) has vastly underperformed on the charts this year, with overhead pressure from the $60 ceiling in September and October preceding the shares’ late-October post-earnings bear gap. With ETSY still trading in annual-low territory and down nearly 9% in 2019, now is the perfect time to buy puts.

WKEND Chart ETSY

Taking a look at options, the stock’s Schaeffer's put/call open interest ratio (SOIR) of 0.62 ranks in the 14th percentile of its annual range, showing there is an unusual call-skew in the front three-months' series. An unraveling of this bullish sentiment could create headwinds for ETSY.

Echoing this, Etsy stock’s 10-day call/put volume ratio of 6.62 ranks in the 85th annual percentile at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), meaning nearly seven calls have been bought to open for every put during the past two weeks.

The security looks ripe for downgrades and/or price-target cuts, too. Currently, 13 of 15 covering firms sport a "buy" or better rating, while the equity’s average 12-month price target stands more than 54% above Friday’s close.

Lastly, the stock’s Schaeffer's Volatility Index (SVI) of 39% ranks in the 8th percentile of its annual range, meaning near-term option premiums are attractively priced at the moment, from a volatility perspective. Our recommended January 45 put has a leverage ratio of negative 7.1, and will double in value on a 12.3% decline in ETSY shares.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this ETSY 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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