The bearish sentiment in the options market for Shopify Inc (NYSE:SHOP) has reached historically high levels, and a short-term rally is becoming increasingly likely for the e-commerce platform maker.
So say the options experts at McMillan Analysis Corp., who today published a note that their computer generated Put-Call Ratio Buy Signal has been visually confirmed by SHOP’s chart (see below):
As you can see above, the 21 day rolling dollar-weighted put-call ratio has spiked over the past month or so, hitting the highest levels we’ve seen since way back in October 2016. This means that bearish options bets on a volume basis are dwarfing those on the bullish side. Such imbalances typically end with a sharp turn in the other direction, and in Shopify’s case, could mean a quick rally to the upside.
For more info put-call ratios and their merit as a contrarian indicators, consult McMillan’s explanation:
Put-call ratios are useful, sentiment-based, indicators. The put-call ratio is simply the volume of all puts that traded on a given day divided by the volume of calls that traded on that day. The ratio can be calculated for an individual stock, index, or futures underlying contract, or can be aggregated – for example, we often refer to the equity-only put-call ratio, which is the sum of all equity put options divided by all equity call options on any given day. Once the ratios are calculated, a moving average is generally used to smooth them out. We prefer the 21-day moving average for that purpose, although it is certainly acceptable to use moving averages of other lengths.
Put-call ratio isn’t a set-in-stone indicator, but it is a historically reliable tool for traders to use to identify stocks that are due for short-term rallies or corrections. Thus, it pays to closely monitor SHOP’s price action over the next several sessions for signs of a pop.
Shopify Inc shares were trading at $92.95 per share on Monday afternoon, down $1.53 (-1.62%). Year-to-date, SHOP has gained 116.82%, versus a 9.97% rise in the benchmark S&P 500 index during the same period.
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