Freight Stock Ending 2020 With a Bang

Options look like an attractive way to get in on Kansas City Southern stock's next move higher

Dec 30, 2020 at 2:33 PM
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Freight and logistics name Kansas City Southern (NYSE:KSU) is on the verge of breaking out from an ascending triangle, and is now riding both the 20-day and 40-day moving averages higher, after a long consolidation. This consolidation took place near the +20% year-to-date level, and since, the equity has broken free. With potential rumors of a M&A also circling, now looks like an ideal time for bulls to bet on KSU’s next leg higher.

KSU Dec 30

In terms of analyst attention, those following KSU heading into Thursday’s trading were leaning bearish. Specifically, nine of the 15 brokerages sport a tepid "hold" recommendation.
Meanwhile, in the options pits, this bearish outlook also looks omnipresent. This is per KSU's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), that ranks in the 71st annual percentile. This indicates a much healthier-than-usual appetite for long puts of late. Echoing this, the stock's Schaeffer's open interest ratio (SOIR) of 1.44 sits in the 80th percentile of its annual range, meaning short-term option traders have rarely been more put-biased.
Plus, the security's Schaeffer's Volatility Index (SVI) of 27% sits in the 14th percentile of its annual range. This means option traders are pricing in relatively low volatility expectations at the moment. Our recommended call has a leverage ratio of 8.2, and will double in value on an 11.7% rise in the underlying security.

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