Cloud-based software stock Okta (OKTA) is down 3.5% this month, cooling off 14% from its March 24 record high of $118.06. Now may be the time to buy the dip though, with the information technology (IT) stock earlier this week testing a historically bullish trendline on the charts.
According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, OKTA is within striking distance of its 80-day moving average. For the purpose of this study, White defines that as the equity trading above the moving average 80% of the time over the past two months and closing north of the trendline in eight of the last 10 sessions before coming within striking distance of it.
Per White’s data, four similar pullbacks occurred over the past three years. Okta stock finished higher one month later after 75% of these signals, averaging a 13% gain. A move of similar magnitude would put the shares back within striking distance of that late March all-time high. The rally is already showing legs, with OKTA 3.7% higher this week alone heading into Friday.
A reversal of the last month’s drawdown could prompt hesitant analysts to step forward. Of the 38 brokerages covering the stock, 17 are on the sidelines with tepid “hold” or worse ratings. A flurry of overdue upgrades and/or price-target hikes could keep the wind at the equity’s back.
In the options pits, the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 0.81 ranks in the 86th percentile of its annual range. This indicates the appetite for puts has rarely been higher. An unwinding of these bearish bets could also serve as a tailwind going forward.
Those currently wishing to place short-term ‘buy the dip’ bets on OKTA may want to consider a premium-selling strategy. Even with earnings over a month away, the stock’s Schaeffer’s Volatility Index (SVI) of 42% sits in the 27th percentile of all comparable readings taken in the past year — pointing to middling volatility expectations. Plus, the equity’s Schaeffer’s Volatility Scorecard (SVS) of 26 indicates the shares have historically underperformed over the past year, relative to what the options market has priced in.