Sporting Goods Retailer Looks Like a Prudent Play for Option Bulls

DKS' technical setup looks promising, too

Feb 24, 2021 at 12:05 PM
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The shares of retail stock Dick's Sporting Goods Inc (NYSE:DKS) are experiencing a bull flag pattern on the charts, with support from both their 20- and 30-day moving averages. Both these trendlines have been significant for the equity in its recent rally, and it looks like DKS is poised for its next run higher.

dks feb 24

In the options pits, DKS's 50-day put/call volume ratio of 1.22 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 84% of readings from the past year. This indicates a stronger-than-usual penchant for long puts in the last 10 weeks.

Meanwhile, analysts are split on Dick's Sporting Good stock, leaving plenty of room for optimism that could act as a tailwind. More specifically, eight of the 16 in coverage carry a "hold" or worse rating on DKS. And although shorts have been in covering mode since June, with short interest down 14.8% during the most recent reporting period, there is still plenty of these bearish bets left. Short interest makes up an impressive 17.8% of the stock's available float, and represent 4.5 days' worth of pent-up buying power.
Speculating on the security's next move with options could be a prudent play. The stock's Schaeffer's Volatility Index (SVI) of 56% stands higher than just 16% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment. Furthermore, the security's Schaeffer's Volatility Scorecard (SVS) sits at a reasonably high 83 out of 100, meaning DKS has tended to exceed these volatility expectations during the past year.

Lastly, our recommended call has a leverage ratio of 5.9 and will double in value on a 16.3% rise in the underlying security.

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