Software Stock Rewards Put Traders With Lofty Profits

The equity is tumbling even lower today

Deputy Editor
Nov 9, 2022 at 1:07 PM
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Subscribers to our Schaeffer's Weekly Options Countdown service scored a 200% profit with our recommended Splunk Inc (NASDAQ:SPLK) November 4, 2022 87-strike put in just over a week. Now seems like a good time to share our reasoning for initiating this short position.

When we made our recommendation on Sunday, Oct. 30, the security was falling into its declining 50-day moving average. That trendline was also home to the $85 level -- five times SPLK's initial public offering (IPO) -- and the site of its March, June, July, and September's lows. Plus, Splunk stock was down 28% year-to-date and more than 50% year-over-year, indicating the shares had little technical support.

At the time of our recommendation, options traders were brushing off the stock's weak price action, and favoring bullish bets. This was per SPLK's Schaeffer's put/call open interest ratio (SOIR) of 0.45, which stood higher than just 4% of annual readings and was evidence of a put-bias amongst short-term traders. What's more, the top 11 open interest positions were calls, and 154,000 calls were on deck across all expiries versus just 69,000 puts. 

SPLK Chart November 092022

The security is down 4.3% at $72.64 at last check, pulling even further away from the aforementioned 50-day trendline. While SPLK is holding above its annual lows, the equity is now 58.5% lower year-over-year, with a 37.9% year-to-date deficit to boot. 

 

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