Why Big Lots Should Be Options Bulls' Next Pick

Options-related support could fall into place as bears begin to hit the exits

Aug 12, 2020 at 11:42 AM
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The shares of Big Lots, Inc. (NYSE:BIG) are trading at their highest level since September 2018, and have added more than 58% year-to-date. Considering this positive price action, now looks like the perfect time to buy calls on BIG.

BIG Chart Aug 12

Meanwhile, there’s plenty of bearish activity occurring in the options pits. This is per BIG’s 10-day put/call volume ratio of 1.72 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the 92nd percentile of readings from the past 12 months, suggesting a healthier-than-usual appetite for puts of late.

Looking at analyst sentiment, of the nine in coverage, five rate the equity a tepid "hold," while one more recommends a "sell. " With just four "strong buys" in the books, there remains plenty of room for upgrades going forward.

Short interest looks to be rolling over, up more than 74% since the April 1 reporting period. This accounts for 22% of the stock's total available float, or four days' worth of pent-up buying power.

Digging deeper, a large number of BIG’s 42.50-strike puts could unwind and provide an additional layer of options-related support. Plus, the equity's Schaeffer's Volatility Index (SVI) of 58% stands higher than 13% of all other readings from the past 12 months, and the stock's Schaeffer's Volatility Scorecard (SVS) sits at 93, indicating Big Lots stock has tended to exceed options traders' volatility expectations during the past year.

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