The stock’s recent high lies amid historically low implied volatility
Technical concerns Infosys Ltd ADR (NYSE: INFY) is up 0.5% this afternoon to $ 21.82 after previously hitting a new all-time high of $ 21.92. The stock has risen steadily up the charts since May, aided by its 40-day moving average that included a pullback in July. Additionally, the stocks are 73.4% ahead of the previous year and are currently showing a historic bullish signal that could help INFY break even more records in the near future.
If you dig deeper, Infosys stock’s high lies amid historically low implied volatility (IV), which has historically been a bullish combination for the stock. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, there have been six more times in the past five years that the stock has traded within 2% of its 52-week high while the Schaeffer’s Volatility Index (SVI) was in the 20th percentile of its annual coverage or lower. This is currently the case with INFY’s 20% SVI, which is in the 1st percentile of its 12 month range.
White’s data shows that a month after those signals, the stock was higher 83% of the time, giving an average return of 5.8%. From its current standpoint, a similar move would push INFY to a new all-time high of $ 23.08.
Analysts are still divided on security, suggesting another round of upgrade may be overdue. Of the 10 in question, five still have a tepid “hold” or poorer rating, while five say “strong buy”.
A decrease in pessimism in the option pits could create more tailwind for security. This corresponds to INFY’s 10-day put / call volume ratio of 1.91 on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which is higher than any other Values in their annual range.
Also, the security’s Schaeffer’s Volatility Scorecard (SVS) ranks 78 out of 100. In other words, Infosys stock tends to exceed those volatility expectations – a boon for option buyers.