Sizzling Healthcare Stock With Options on Sale

Last time this rare options signal sounded, the shares skyrocketed

Tenet Healthcare Corp (NYSE:THC) stock has been on fire lately, with the shares exploring two-year highs in the wake of last week's earnings win. What's more, THC options are trading at a relative bargain, despite the equity's advance. The last time Tenet shares were trading near new highs and simultaneously sported attractively priced options, the stock skyrocketed over the next month.

THC stock barreled up the charts to start the month, thanks to the aforementioned earnings report, and the equity is now up more than 35% in May, set for its best month since December 2010. Further, Tenet shares have more than doubled in 2018. At last check, the security was up another 3.4% to trade at $32.36, and yesterday notched a two-year high of $32.73.

With earnings out of the way, THC's short-term options have become cheaper. The stock's Schaeffer's Volatility Index (SVI) of 48% is in just the 9th percentile of its annual range, suggesting near-term options are pricing in low volatility expectations for Tenet shares.

Since 2008, there has been just one other time in which THC stock was flirting with annual highs and simultaneously sported an SVI in the bottom 20% of its annual range. It proved to be the perfect time to buy calls on the stock, which went on to rally 14.73% over the next month, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. A similar jump from current levels would put THC around $37.13 -- territory not charted since October 2015.

A round of analyst upgrades could certainly propel the equity higher. Although Tenet Healthcare stock has outperformed the broader S&P 500 Index (SPX) by more than 65 percentage points in the past three months, eight of the 14 brokerage firms following THC maintain tepid "hold" or worse ratings.

A continued short squeeze could also be a tailwind for THC. Although short interest fell 11% in the most recent reporting period, nearly a quarter of the stock's float remains dedicated to short interest. At the security's average pace of trading, it would take about two weeks for the remaining bearish bets to unwind.