Bulls Could See Sweet Returns on This Chocolate Stock

Seasonality is on the equity's side

Oct 18, 2022 at 11:57 AM

Hershey Co (NYSE:HSY) has several layers of support on the charts, including its 20-week moving average as well as a long-term trendline connecting multiple lows in 2021 and in June and September of 2022. This pattern appears to be echoing the 2021 consolidation that led to a massive breakout, indicating a next leg higher for HSY could be imminent.

The stock is armed with an array of moving averages that support a bullish thesis. Its 160-day trendline is just around the $220 level, which has been a critical area of support through its bull run and is double its 2020 Covid lows. Plus, the top put open interest position is at the 220-strike – supportive of the current price. The 230-strike peak call level will evaporate in October, potentially allowing a breakout.

hsy oct 18

Meanwhile, HSY’s 50-day put/call volume ratio of 1.41 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 80th percentile of its annual range. This ratio has typically indicated bullish price action in the past, and an unwinding of this pessimism could provide tailwinds.

Hershey is also entering a seasonally favorable period. Historically, the stock finished positive 67% of the time through the holding period, with November and December providing the third- and first-best returns on a monthly basis, respectively. Our recommended January 2023 call has a leverage ratio of 7.2 and will double in value on a 13.5% pop in the underlying shares.

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