Low Expectations Could Fuel Big Gains for VMware Stock

The software shares are trading in record-high territory

Software name VMware, Inc. (NYSE:VMW) has been trading in a solid channel of higher highs lately. The shares hit an all-time high of $194.24 just last week, and are now pulling back to their 20-day moving average - a trendline that has acted as support this year.We believe now is an opportune time to get in on VMW's next leg higher.

In spite of VMW's impressive price action, options traders are still piling on puts. The security sports a 10-day put/call volume ratio of 2.05 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) that sits in the 90th percentile of its annual range. This could mean additional tailwinds on the charts, should these bearish bets begin to unwind.

The data concern is ripe for analyst upgrades. While 17 "buy" or better ratings are currently on the table, 14 analysts give it a tepid "hold," and two say "sell." Plus, the consensus 12-month price target represents a discount to current levels, leaving the door open for potential price-target hikes to lure more VMW buyers.

Options are attractively priced right now, too. Currently, VMW's Schaeffer's Volatility Index (SVI) of 27% sits higher than only 9% of all other readings from the past year. This means near-term options are pricing in relatively low volatility expectations.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this VMW commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.