Shifting Sentiment Could Help Wayfair Stock Extend Rally

Put traders have been targeting the equity. Wayfair stock is heavily shorted. E-commerce platform Wayfair Inc (NYSE:W) enjoyed a massive 30% post-earnings bull gap last week. The stock has managed to hold on to most of those gains, with support emerging at the $104 level, and an unwinding of pessimism amongst options traders could help push it even higher.

W sports a 50-day put/call volume ratio of 1.71 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) that stands higher than 99% of readings from the past year. There have been three instances in the last three years that the equity's 50-day buy-to-open put/call ratio crossed over 1.0 and moved into the 90th percentile. Per Schaeffer's Senior Quantitative Analyst Rocky White, Wayfair was higher one month later 100% of the time after these signals with an average 11.1% return. From its current perch, this would put the stock back near $587. Plus, short interest represents 14.2% of the stock's available float. It would take shorts nearly four days to cover their bets, at W's average pace of trading.

The long-standing Pattern Day Trader (PDT) rule that required many traders to maintain a $25,000 account balance is no longer standing in the way. That means more traders can actively pursue short-term opportunities without the barrier that kept so many on the sidelines. Now it's all about having the right strategy.