ELY is ripe for a round of short covering
Every day for the next two weeks, we're going to highlight one of Schaeffer's top 14 picks for 2021. First up on the tee box is Callaway Golf (ELY). To access the entirety of the 2021 report, click here.
Back in late October and early November, golf equipment company Callaway Golf (ELY) carded two double-bogeys on the charts -- first gapping lower after the acquisition of entertainment company TopGolf and again when it suffered a Nov. 10, post-earnings drop of 2.6%. Since then, ELY has steadied itself and broken out of a technical downtrend to test old all-time-highs, culminating in a Dec. 17 peak of $24.49. The shares' multiple top formation has potential to break before the company's February quarterly report, while the cheaper implied volatilities between that time frame serve as an extra incentive.
As ELY clawed back above its year-to-date breakeven level in the last month or so, short interest remained near all-time high levels. More specifically, the 16.73 million shares sold short account for a whopping 19.3% of ELY's total available float, or seven days' worth of pent-up buying power, at the stock's average pace of trading.
These premiums are well-priced at the moment, too, per the stock's Schaeffer's Volatility Index (SVI) of 49%, which stands higher than only 9% of all other readings in its annual range. This implies that options players are pricing in relatively low volatility expectations at the moment. In conclusion, Callaway Golf is a $2.2 billion company, and the $3 billion level represents $31.70. With that in mind, keep an eye on the $30 level in 2021, as it is nearly double its post-earnings lows from November.
Chris Prybal is a Senior Market Strategist at Schaeffer's Investment Research. A lifelong student of the markets, he made his first trades before he even began attending the University of Cincinnati, where he studied finance and treasury management. Prybal's areas of expertise include option premium buying and selling, and his equity and market research have been cited by Barron's, MarketWatch, Forbes, Investopedia, and the Cincinnati Business Courier.