Trade Idea: Don't Miss This Autodesk (ADSK) Stock Buy Signal

09/28/2017 1:54 pm EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

The modest cost of entry on near-term ADSK options means you can take full advantage of leverage to profit from another surge higher by the stock, says Elizabeth Harrow, at Schaeffer’s Investment Research.

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AutoCAD software parent Autodesk (ADSK) gapped higher in late August after announcing a slimmer-than-expected quarterly loss. Since that Aug. 25 earnings-day peak just shy of the $120 level, the shares have consolidated some gains, with ADSK currently hovering around the $111 level.

However, the stock's meet-up with a key moving average suggests that now is an opportune time to bet on ADSK's next leg higher -- particularly with near-term option premiums lingering near annual-low levels.


Schaeffer's Senior Quantitative Analyst Rocky White notes that ADSK is currently trading less than one standard deviation from its 80-day moving average. The shares have consistently traded above this trendline since mid-July 2016 -- and previous pullbacks to the 80-day have proved to be rewarding buying opportunities for bulls.

In fact, on the seven previous such signals, ADSK was higher five days later 100% of the time, with an average return of 5.79% over this time frame. And looking out 21 days after a signal (roughly one month's worth of trading), ADSK boasts an average return of 5.20%, with 86% of those returns in the positive column.

Options traders seem fairly unmoved by this bullish chart signal for ADSK, with Trade-Alert noting that put open interest on the software stock stands at 34,050 contracts -- in the 82nd annual percentile. By contrast, call open interest is in the middling 59th percentile, at 65,691 contracts.

The healthy demand for ADSK puts has pushed the 30-day implied volatility (IV) skew up to 9.1%, in the 88th annual percentile, which means that now is a particularly inopportune time to invest in ADSK put options.

However, for those looking to capitalize on a likely bounce from long-time trendline support, call options remain attractively priced, from a volatility perspective.

Currently, Trade-Alert puts ADSK's 30-day at-the-money IV at 27.1%, which registers in the low 11th percentile of its annual range. The modest cost of entry on near-term ADSK options means you can take full advantage of leverage to profit from another surge higher by the stock.

View Schaeffer’s Investment Research for stock and options ideas, options education, and market commentary here…

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