Mattress Stock for Bulls to Sink Into This Month

An unwinding of pessimism in the options pits could push TPX higher

Dec 7, 2021 at 12:12 PM
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Tempur Sealy International Inc (NYSE:TPX) is experiencing a bull flag pattern on the charts, with support near its summer breakout level as well as its 160-day moving average – a familiar trendline in its history of bull cycles. With this technical foundation in place, now looks like a good time to weigh on TPX with calls.

TPX Dec7

There is plenty of short-covering potential, as short interest is near three-year highs. At TPX's average pace of trading, it would take over four days to buy back these bearish bets.
 
An unwinding of pessimism in the options pits could provide tailwinds as well. Tempur Sealy stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 91% of readings from the past year, indicating long puts have been picked up at a much faster-than-usual rate in the last 10 weeks.
 
TPX is seeing well-priced premiums at the moment, too. The stock's Schaeffer's Volatility Index (SVI) of 39% stands higher than 24% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment.
 
Our recommended call option has a leverage ratio of 5.4, and will double in value on a 19% rise in the underlying equity.

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