The real estate stock's December peak comes amid historically low implied volatility
The shares of Redfin Corp (NASDAQ:RDFN) are down 2.5% at $78.71 at last check, after BTIG downgraded the real estate concern to "neutral" from "buy." Traders shouldn't worry just yet, though, as the equity just hit a Dec. 22, all-time-high of $83.71, and the 20-day moving average contained its latest pullback. What's more, a historically bullish signal now flashing suggests more records could be in store for RDFN.
Specifically, the stock's recent peak comes amid historically low implied volatility (IV), which has been a bullish combination for the equity in the past. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been only three other times in the past five years when RDFN was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower -- as is the case with the security's current SVI of 66.3%, which sits just above the 15th percentile of its 12-month range.
White's data shows that a month after these signals, Redfin stock was higher, averaging a significant 32.7% return for that time period. From its current perch, a similar move would put RDFN just above the $105 mark -- well above the stock's December peak.
Analysts were pessimistic toward the security coming into today, leaving plenty of room for upgrades and/or price-target hikes going forward. Of the 17 in coverage, 12 carried a tepid "hold" or worse rating. Plus, the stock's 12-month consensus target price of $56.73 is a whopping 28.6% discount to current levels.
Digging deeper, Redfin stock could benefit from a short squeeze. Short interest rose 14.9% in the last two reporting periods, and the 7.41 million shares sold short make up 8.1% of the stock's available float, or nearly a week's worth of pent-up buying power.
Tailwinds may also come in the form of a shift in the options pits. This is per the equity's Schaeffer's put/call ratio (SOIR) of 1.43, which stands in the 78th percentile of the past 12 months, suggesting short-term options traders have rarely been more put-biased.
Lastly, RDFN's Schaeffer's Volatility Scorecard (SVS) sits at 94 out of 100, indicating it has tended to exceed option trader's volatility expectations over the past year -- a boon for option buyers.