Gene technology concern Illumina (ILMN) suffered with most other stocks in the fourth quarter, dropping more than 18%. However, history most definitely favors the bulls for ILMN, which has been one of the best stocks to own in January over the past decade. What’s more, Illumina has a couple of events on the calendar that could act as catalysts on the charts.
Specifically, the company is scheduled to present at the J.P. Morgan Healthcare Conference on Monday, Jan. 7, and is slated to report earnings on Monday, Jan. 28. Looking back over the last 10 years, ILMN stock has ended January higher 80% of the time, with an average gain of more than 15.2%, per Schaeffer’s Senior Quantitative Analyst Rocky White. That’s the highest of all S&P 500 Index (SPX) stocks with at least eight years’ worth of returns, with the exception of Netflix (NFLX).
If ILMN once again goes into beast-mode this month, another 15% gain from current levels would place the shares around $341. However, it should be noted that the $340-$350 neighborhood has acted as a ceiling for the stock’s rebound attempts since its Sept. 28 record high of $372.61. This area is also home to ILMN’s lows from early October, before the shares gapped lower on biotech sector headwinds.
The equity could find support in the options pits, though. The stock’s Schaeffer’s put/call open interest ratio (SOIR) of 1.10 is in the 83rd percentile of its annual range, suggesting short-term traders are much more put-heavy than usual on ILMN right now. Should the shares once again flex some serious technical muscle this month, an exodus of option bears could help drive the stock’s rebound.
Newfound short sellers could also hit the exits. Short interest on ILMN surged more than 10% in the past two reporting periods, and now represents nearly 3 million shares, or about three days’ worth of pent-up buying demand, at ILMN’s average pace of trading.
Traders looking to speculate on ILMN’s short-term trajectory could consider weekly 2/8 calls, which expire on Friday, Feb. 8. The ask price of the near-the-money 295-strike call is currently $22.20, meaning buyers would profit the higher ILMN jumped above $317.20 (strike plus premium paid) by options expiration. Or, for traders looking for a bit more cushion — with regard to both time value and intrinsic value — the February 290 call was last asked at $25.10, making breakeven at the Feb. 15 expiration date $315.30. However, it should be noted that ILMN’s Schaeffer’s Volatility Index (SVI) of 53% is in the 68th percentile of its annual range, suggesting short-term options are pricing in relatively high (read: expensive) volatility expectations right now.