Red-Hot Software Stock Has Room To Run

Singapore-based software and e-commerce stock Sea Ltd (SE) hit an 18-month high of $86.37 on Thursday. The shares are now up 111% in 2024, carving out a channel of higher highs per the chart below. Plus, signals are flashing that show SE’s rally still could still have legs, if past is precedent.

Sea stock’s new highs are coinciding with historically low implied volatility (IV) — a combination that has been bullish for the e-commerce company in the past. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been five other instances when SE was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th annual percentile or lower — as it the case with Sea’s current SVI of 36%, in the 5th annual percentile.

The data shows that one month after the previous signal, the equity was up 9.2%. From its current perch at $85.61, a move of similar magnitude would put the stock above $90 for the first time since August 2022.

Bull notes could also provide tailwinds. While 15 of the 18 brokerages in coverage maintain “buy” or better ratings, SE’s consensus 12-month price target of $88.81 is only a 3.6% premium from its current perch. Given the stock’s outperformance, overdue price-target hikes could fuel additional gains.

The options pits have been surprisingly pessimistic, and an unwinding of these bearish bets could soon occur. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 6,296 puts were bought to open in the last 10 days, compared to just 2,413 calls. The resultant call/put volume ratio of 2.61 sits two percentage points from an annual high, suggesting a healthier-than-usual appetite for bearish bets of late.

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Echoing this, the security’s Schaeffer's put/call open interest ratio (SOIR) of 1.30 arriving in the elevated 84th annual percentile. This indicates a bigger-than-usual appetite for puts over calls among short-term traders.