Retail Stock for Bulls to Score on the Dip

Short covering could keep tailwinds blowing for DKS

Jan 24, 2023 at 11:08 AM

Retail stock Dick’s Sporting Goods (NYSE:DKS) was on our internal 52-week high/low implied volatility screen earlier this week, a historically bullish signal for equities. The stock also just pulled back to the $120 area, which coincides with the round $10 billion market cap and was a resistance zone in early 2022, and again from September to December of 2022. Plus, the low this past week corresponds with DKS’ year-over-year breakeven level.

With this technical support in place, now looks like a good time to bet on Dick’s Sporting Goods stock’s next leg higher. Plus, the retail stock is still strong even amid recession worries entering this year.

Though shorts have been in covering mode since July, short interest still represents 16.7% of the stock’s available float. Plus, DKS is up about 60% since short covering began.

An optimistic shift in the options pits could push the equity higher as well, as DKS’ Schaeffer’s put/call open interest ratio (SOIR) of 2.41 ranks higher than 92% of annual readings. This indicates that short-term traders have rarely been more put-biased.

Our recommended call has a leverage ratio of 6.00, and will double on an 16.5% rise in the underlying equity.

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