Weekend Trader Alert
December 10, 2023
Open Positions Update
- Close the Digital Realty Trust (DLR) January 19, 2024, 115-strike call on Monday, December 11. Close the position at a limit price within the range of the current market price when you place the order.
- Close the Marathon Petroleum (MPC) January 19, 2024, 145-strike call on Monday, December 11. Close the position at a limit price within the range of the current market price when you place the order.
The following is this week's recommendation:
UiPath (PATH)Place a limit order to buy the UiPath (PATH) February 16, 2024 22.50-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, December 8, this option was offered at $3.40. PATH closed at $24.63 on Friday, December 8.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, January 8, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Software stock UiPath (PATH) broke out from a weekly base pattern last week, finding a low on Thursday near its summer 2022 highs. PATH’s price is now moving back into its March 2022 post-earnings bear gap, and could fill the drawdown in the coming months amid an unwinding of pessimism.
Shorts began covering this fall, but are accelerating now into the end of the year. Short interest fell 11% over the last two weeks, yet the 37.52 million shares sold short still accounts for a healthy 8.4% of the stock’s total available float. What’s more, 13 of 22 covering analysts still rate UiPath stock a tepid “hold,” showing hesitancy even after a big post-earnings double beat earlier this month. These brokerages lagging behind could be forced to upgrade and raise their price targets, giving PATH a short-term boost.
An unwinding of options traders’ pessimism could also bode well for the equity, per its Schaeffer’s put/call open interest ratio (SOIR) that ranks higher than 96% of annual readings. Further, the equity’s 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands in the 74th percentile of readings from the past 12 months, underscoring the recent uptick in bearish sentiment.
Options traders are in luck, as PATH sports a Schaeffer’s Volatility Index (SVI) of 50%, which ranks in the 13th percentile of its annual range. This means options traders are pricing in very low volatility expectations at the moment. Our recommended February 22.50 call has a leverage ratio of 5.3, and will double on an 18.7% pop in the underlying shares.
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