Don't Sweat This Software Stock's Pullback

A shift in the options pits would create additional tailwinds for VMW

May 12, 2021 at 11:22 AM

Software concern VMware, Inc. (NYSE:VMW) recently found support at the $157 mark, which also happens to be the same level that put pressure on the equity in May, June, and October of 2020. What's more, the 20-day moving average is helping the shares move higher on the charts. With these technical layers of support in place, now looks like a great time to purchase VMW calls.

Additional tailwinds could also come from a shift in the options pits. This is per VMware stock's 10-day put/call volume ratio at the international Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQOMX PHLX (PHLX), which ranks in the 79th percentile of readings from the past year.

Currently, analysts are split on the security, with nine of the 17 in coverage rating it a "buy" or better versus eight that recommend a "hold" rating. This leaves plenty of room for upgrades going forward. Short interest has been on the rise too, and is currently sitting at its highest level in two years. The 11.37 million shares sold short represent a healthy 14.6% of the stock's available float, though it has yet to roll over.

Lastly, now looks like an affordable time to weigh in on VMW's next move with options, as the stock's Schaeffer's Volatility Index (SVI) of 27% sits higher than 11% of readings from the past year. This is a boon for premium buyers, as it indicates options are particularly cheap at the moment. Our recommended call has a leverage ratio of 8.8 and will double in value on a 10.6% rise in the underlying security.

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