Tenet Healthcare (THC) stock has rallied roughly 144% in 2018, and touched a two-year high of $38.81 earlier this week. What’s more, THC options are trading at a relative bargain, despite the equity’s neck-breaking ascent. The last time Tenet shares were trading near new highs and simultaneously sported attractively priced options, the stock extended its rally over the next month.
THC stock spent the first couple months of the year barreling higher, before consolidating gains around the $25 marker. However, following a well-received earnings report on May 1, the healthcare stock resumed its uptrend, and has advanced more than 50% in just the past three months. At last check, the security was down 1.9% to trade at $37.04.
The stock’s Schaeffer’s Volatility Index (SVI) of 46% is in just the 6th percentile of its annual range, suggesting near-term options are pricing in low volatility expectations for Tenet shares. Looking back 10 years, there were just two other times at which THC was near an annual high while simultaneously sporting an SVI in the bottom 20% of its annual range. After those instances, THC stock jumped 19.48% the following month, on average, and was higher both times, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. A similar lift from the stock’s current perch would put THC around $44.26 — territory not charted since late 2015.
Plus, despite the healthcare stock’s momentum this year, not to mention Tenet’s impressive fundamental showing last month, there’s still plenty of room on the bullish bandwagon. Currently, more than half of the analysts following THC maintain tepid “hold” or “strong sell” ratings, leaving the door open for potential upgrades to lure more buyers.
Likewise, a short squeeze could also translate into a tailwind for THC. Short interest represents more than 20% of the stock’s total available float, or nearly a week’s worth of pent-up buying demand, at Tenet’s average trading volume
Speculators looking to purchase THC calls could consider the weekly 6/29 37-strike call, which is currently asked at $1.60. Buyers of the call will profit the higher Tenet Healthcare stock rallies north of $38.60 (strike plus premium paid) by the close on Friday, June 29, when the options expire. Should the shares extend today’s pullback, meanwhile, the most the buyers can lose is the initial premium paid.