The shares of chemical concern Platform Specialty Products (PAH) have rallied 36% since touching an annual low of $9.09 in early April, but are running into a speed bump in the $12.50-$13 area — a region that used to serve as support. However, the stock just flashed a historic “buy” signal, and short-term options look attractive after a post-earnings volatility crush.
PAH stock is within one standard deviation of its 40-day moving average, after a notable stretch north of this trendline. There have been four similar pullbacks in the past, and each preceded a rally for the equity, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. Specifically, one month later, PAH was up 100% of the time, with an average gain of 7.16%. From PAH’s current price of $12.38, a similar pop would put the equity around $13.27 — above recent resistance and near annual highs.
Should Platform Specialty shares once again pop higher, a short squeeze could add fuel to their fire. Short interest grew 8.8% in the past two reporting periods, and now accounts for more than 10% of the stock’s total available float. At PAH’s average pace of trading, it would take these bears more than two weeks to repurchase their positions.
As alluded to earlier, traders looking to speculate on PAH’s short-term trajectory could take advantage of relatively low option premiums after Platform Specialty’s turn in the earnings confessional last week. The stock’s Schaeffer’s Volatility Index (SVI) of 38% is in just the 13th percentile of its annual range, suggesting near-term options are pricing in relatively low volatility expectations — a boon for would-be premium buyers.
The September 12.50 call is currently asked at 55 cents. Buyers of this call will profit if PAH stock topples $13.05 (strike plus premium paid) — just a 5.4% jump from current levels — by the close on Friday, Sept. 21, when the options expire.