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Buy Calls on This Quietly Soaring Software Stock

Karee Venema

The shares of Coupa Software Inc (NASDAQ:COUP) gapped nearly 10% higher on June 4, after the Business Spend Management software specialist's strong earnings report was met with a round of bullish brokerage notes. The tech stock went on to tag a record high of $129.40 on June 10, and following a brief consolidation atop its 10-day moving average, is now back near this technical milestone. A reliable bullish signal just sounded for COUP stock, too, suggesting higher highs could be on the horizon.

In the wake of Coupa Software's first-quarter earnings reveal, volatility expectations imploded on the stock -- pointing to attractively priced short-term options premiums. Its Schaeffer's Volatility Index (SVI) is currently docked at 44%, which registers lower than 87% of similar readings in the past year.

According to Schaeffer's Quantitative Analyst Chris Prybal, there have been three other times COUP was trading within 2% of new highs while its SVI ranks in the 20th annual percentile or below. Looking one month out after these previous three signals, the stock was higher each time, boasting an average gain of 11.3%. Another move of this magnitude would put the shares above $142 for the first time ever, based on their current perch at $127.95.

There's an ample amount of skepticism priced into Coupa Software stock, too, which could create tailwinds on a potential unwind. Despite the onslaught of bullish notes earlier this month, there are still five "hold" ratings levied against COUP. Plus, the average 12-month price target of $117 is a discount to current trading levels.

Meanwhile, short sellers have been busy building bearish positions on COUP. Short interest jumped 15% in the two most recent reporting periods to a record 7.11 million shares. This represents 13.3% of the equity's available float, or 4.4 times the average daily pace of trading. A capitulation from some of the weaker bearish hands could vault COUP higher in the short term.

While COUP stock is on pace for a double-digit percentage gain in June, it's also headed for its third straight monthly win. Year-to-date, the shares have more than doubled, and a recent bounce off their previous highs in the $116-$117 region have them within striking distance of their all-time peak, up 0.8% today at $127.90.

coup stock price chart on june 20