Near-term options traders are pricing in modest volatility expectations
Toymaker Hasbro, Inc. (NASDAQ:HAS) gapped higher after a positive earnings surprise in April, and after a subsequent pullback, has resumed its upward momentum. The equity has already added 12.9% so far in June, barreling past the $100 level to trade at year-to-date highs. In fact, HAS stock is now within striking distance of taking out its September peak, and we feel now is an opportune time to buy calls.
Despite severely outperforming the S&P 500 Index (SPX) year-to-date, HAS remains plagued by pessimism. The stock’s rally on the charts has coincided with an increase in short interest, as these bearish bets jumped 5.9% during the past two reporting periods. Short interest now represents nearly eight sessions’ worth of pent-up buying demand, at the equity’s average pace of trading -- ample fuel for a short squeeze to drive the toy stock even higher.
In the same skeptical vein, five of 12 analysts following HAS maintain tepid "hold" opinions, and the consensus 12-month price target of $107.50 represents a premium of less than 1% to the security’s current perch. This leaves the door wide open for analyst upgrades or price-target hikes to lure more buyers to the table.
Meanwhile, options traders have bought to open more than three Hasbro puts for every call during the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 10-day put/call volume ratio of 3.41 is in the 84th percentile of its annual range, pointing to more aggressive-than-usual put buying over call buying of late. An exodus of option bears could also be a boon for HAS.
Finally, the stock’s Schaeffer’s Volatility Index (SVI) of 24% is in just the 12th percentile of its annual range, suggesting HAS’ near-term options are pricing in relatively modest volatility expectations.
Subscribers to Schaeffer's Weekend Trader options recommendation service received this HAS 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.