Autodesk Shareholders Can Lock In Gains With This Options Play

Shares of Apple supplier Autodesk (ADSK) are assailing new heights today, after KeyBanc resumed coverage with an “overweight” rating. However, ADSK’s upside momentum could come to a halt, if recent history is any indicator, and shareholders may want to consider buying options insurance.

ADSK was last seen 1.7% higher at $169.91, and earlier touched a new record high of $170.76. The equity has surged 44% since its Dec. 24 low of $117.72, and recently overtook resistance in the $164 area, which stifled the stock’s upward momentum in February.

Meanwhile, ADSK’s near-term options remain attractively priced. Its 30-day at-the-money implied volatility of 25.7% is in just the 13th percentile of its annual range, and its Schaeffer’s Volatility Index (SVI) of 25% is higher than just 4% of all other readings from the past year. In other words, near-term options are pricing in relatively low volatility expectations for ADSK.

Since 2008, there have been five other times when Autodesk stock was trading near new highs while simultaneously sporting an SVI in the bottom 20% of its annual range. After those signals, ADSK was lower one month later every time, averaging a loss of 4.34%, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. A similar drop from current levels would put ADSK around $162.60 — back below former resistance in the $164 neighborhood.

Against this backdrop, Autodesk shareholders could consider picking up options protection at a relative discount. The May 165 put was last asked at $3.65. Since protective put buyers are shareholders first and options traders second, buyers of the put want ADSK to extend its rally higher — the option merely acts as a form of insurance, allowing the trader to sell 100 Autodesk shares for $165 apiece (the strike), should the security breach that level before May options expire.

In fact, a run on protective puts could be why ADSK has seen such heavy put buying lately. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 10-day put/call volume ratio of 2.58 is in the 95th percentile of its annual range, pointing to a much healthier-than-usual appetite for purchased puts over calls in the past two weeks.