EW is the only S&P 500 stock that has ended June higher nine of the past 10 years
The stock market isn’t known for summer rallies, per the old adage “Sell in May and go away.” In fact, monthly seasonality data from Schaeffer’s Quantitative Analyst Chris Prybal reveals that, since the inception of the SPDR S&P 500 ETF Trust (SPY), June and August are two of only three months out of the year where SPY’s average return is negative. However, if recent history is any indicator, Edwards Lifesciences Corp (NYSE:EW) is one of a handful of stocks that could outperform in June.
Over the past 10 years, Edwards Lifesciences stock has been the best S&P 500 Index member to own in the month of June. EW shares have averaged a monthly gain of 6.4%, and ended the month higher 90% of the time — the only stock that boasts that bragging right.
EW stock gapped lower in mid-April, after the company reported disappointing first-quarter heart valve sales. However, since its post-earnings low of $123, the equity has rebounded almost 10%, and was last seen trading around $134.74 — back above the $134 level that acted as a floor for EW in March and early April. Another 6.4% jump from current levels in June would put Edwards stock around $143.36 — in record-high territory.
Recent options traders have been scooping up EW calls at a rapid-fire rate. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity’s 10-day call/put volume ratio of 15.91 is in the 100th percentile of its annual range. However, some of the recent call buying — particularly at out-of-the-money strikes — could be attributable to short sellers seeking an options hedge.
Short interest on Edwards Lifesciences nearly doubled in the past two reporting periods, and now accounts for 5.61 million EW shares. At the security’s average pace of trading, it would take about a week to buy back these bearish bets — plenty of fuel for a short squeeze, should the stock extend its recent rebound and once again outperform in June.
Whatever the motive, short-term options traders have been scooping up EW contracts at a discount. The equity’s Schaeffer’s Volatility Index (SVI) of 20% is in just the 9th percentile of its annual range, suggesting Edwards’ near-term options are pricing in relatively low volatility expectations.