The shares of Shopify (SHOP) touched a record high of $185.07 on Tuesday, but today are pulling back, down 1.3% at $178.86. However, the stock is sending up a historical buy signal, and SHOP’s short-term options look attractively priced in the wake of a post-earnings volatility crush.
SHOP stock has charged more than 29% higher in 2019 already, bolstered by its 10-day moving average. Prior to today, the equity’s 14-day Relative Strength Index (RSI) stood at a lofty 70 — in overbought territory, suggesting today’s pullback may have been in the cards.
As alluded to earlier, SHOP options are attractively priced at the moment. The security’s Schaeffer’s Volatility Index (SVI) of 39% is higher than just 7% of all other readings from the past year, suggesting near-term options are pricing in relatively low volatility expectations for Shopify shares.
There have been just five other times where SHOP was within striking distance of a 52-week high while simultaneously sporting an SVI in the bottom 20% of its annual range. After those signals, the stock was higher a month later four times, and was up an average of nearly 9%, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. A similar pop from current levels would place the equity just under $195, back in uncharted territory.
An extended short squeeze could add fuel to SHOP’s fire, too. Short interest fell 6.4% in the most recent reporting period, but still accounts for more than 8% of the security’s total available float. At the stock’s average pace of trading, it would take nearly seven sessions to repurchase the remaining pessimistic positions.
Upbeat analyst attention could also be forthcoming. Despite SHOP’s quest for all-time highs, eight of 22 analysts maintain icy “hold” or “sell” ratings. Plus, the consensus 12-month price target of $187.93 represents a slim 4.9% premium to current levels. A round of upgrades and price-target hikes could lure even more buyers to the table.
In conclusion, if history is any indicator, now is an opportune time to buy short-term calls on SHOP. The contracts are going for a relatively modest premium, and the shares have rallied after previous signals. The security’s March 180 call was last asked at $7.10, meaning buyers would need SHOP to rally above $187.10 (strike plus premium paid) by the close on Friday, March 15, when front-month options expire.