ZTO Express (Cayman) Inc (NYSE:ZTO) has been making a fast and aggressive move higher in recent weeks, up 22% since an early August bounce off its 200-day moving average. More recently, the security tapped a 13-month high of $21.20 earlier this month, but has since eased back to $20.99. If history is any guide, though, it could be a prime time to buy cheap calls to bet on more upside for the Chinese delivery stock.
Specifically, short-term ZTO Express options are pricing in unusually low volatility expectations at the moment, per the stock's Schaeffer's Volatility Index (SVI) of 26%, which registers in the 5th annual percentile. In other words, near-term options premiums are attractive right now, from a volatility standpoint.
And per data from Schaeffer's Senior Quantitative Analyst Rocky White, this combination of high stock price and low implied volatilities has been bullish for ZTO shares in the past. In fact, the one other other time the stock was trading within 2% of a new 52-week peak while its SVI ranks in the 20th annual percentile or lower, it was up 23.6% one month later. Another move of this magnitude would put ZTO near $26 for the first time ever.
Meanwhile, short-term options traders have been more put-heavy than usual toward the stock, per its Schaeffer's put/call open interest ratio (SOIR) of 2.43, which registers in the 85th annual percentile. A notable amount of front-month open interest is docked at the underfoot September 20 put, which could help buoy ZTO shares, as the hedges related to these bets begin to unwind.
A round of short covering could create even more fuel for the stock, too. Short interest on ZTO jumped 7.1% in the most recent reporting period to 17.22 million shares. It would take bears nearly seven days to buy back these bets, at the average pace of trading, pointing to sideline cash available to fuel future gains.