Clocking in as one of the top names on Barchart’s screener for unusual stock options volume, theme park operator Six Flags Entertainment (SIX) makes for an intriguing contrarian bullish narrative. Although SIX stock finds itself down almost 2% since the beginning of the year – hardly an inspiring performance given the upswing of the benchmark equity indices – it might benefit from a tight labor market.
Even though the latest employment print cooled against analysts’ expectations, the economy still added 209,000 jobs. In other words, those who are reasonably qualified for an employment opportunity can get it. Further, with this sense of security and bolstered discretionary funds to boot, it wouldn’t be too surprising to see SIX stock steadily move higher from here.
Further, the revenge travel phenomenon that sparked considerable interest in travel and other social experiences continues to be prevalent this year. As evidence, certain airliners have performed quite well so far in 2023 as consumers deploy the savings accrued during the COVID-19 stimulus phase on vacations they were forced to defer because of the crisis.
However, the consumer base can’t be expected to continue lifting sentiment for the broader discretionary retail space. For example, an op-ed earlier this year from The New York Times detailed how some individuals who engaged in “revenge spending” recognized that they have gone too far. Therefore, either personal volition or acute circumstances may force consumers to be more financially prudent.
With that, below is a quick breakdown of market prospects for SIX stock.
Bullish Traders of SIX Stock Make Their Presence Known
As stated earlier, SIX stock pinged as a top highlight for unusual options volume. Following the close of the Aug. 1 session, total volume reached 16,278 contracts against an open interest reading of 39,323. Further, the delta between the Tuesday session volume and the trailing one-month average metric came out to 973.75%.
Drilling down, call volume hit 8,287 contracts while put volume landed at 7,991 contracts. This pairing yielded a put/call volume ratio of 0.96, which given the upward bias of the market isn’t exactly favorable to the bulls. However, the put/call open interest ratio sits at 0.41, which smiles on the bullish side of the fence.
Interestingly, options flow data by Fintel shows that on Monday and Tuesday, a surge of trades with bullish implications hit the airwaves. Through multi sweep, box trade and box-split transactions, traders sold puts. In addition, implied volatility has been rising since late June, signaling the possibility of a big move ahead.
To be clear, the above development should not be taken as a sign that upside is guaranteed. Right now, the Barchart Technical Opinion indicator notes that SIX stock rates as a 56% sell. Thus, it’s possible that the bears can spoil the party. At the same time, a 56% sell isn’t the strongest bear signal. So, on the flipside, it’s also within reason that the bulls can blow up the bears.
Fundamentally, there may be a solid chance that the average consumer could be a little bit stronger than expected. Remember that during the wild housing boom following the initial impact of COVID-19, many folks were simply priced out. With homebuying sentiment hitting a record low this year, this ugly framework may imply that the cash that would have gone to a downpayment are now in consumers’ wallets.
Frustrated with the situation, what better way to let off some steam than with a fun-filled vacation? Therefore, SIX stock might make for intriguing speculation.
Don’t Hit the Buy Button Just Yet
Although the consumer may have home downpayment funds that are annoyingly sitting in bank accounts, that alone doesn’t necessarily mean that the cash will be deployed on vacations. Even if it were, it also doesn’t necessarily translate to higher valuations for SIX stock. Six Flags just happens to be one of several points of attraction.
Also, the unique circumstances revolving around the COVID-19 crisis didn’t materialize in a vacuum. While many would-be homebuyers were priced out, that doesn’t equate to a favorable outcome. As the Harvard Joint Center for Housing Studies pointed out, both home prices and rents skyrocketed. So, if inflation didn’t hurt consumers on one avenue, it U-turned and got the straggling survivors on another.
On a company-specific note, Six Flags failed to offer the most holistically encouraging results regarding its financial disclosures. True, efforts in improving guest experiences during the first quarter demonstrated early progress, subsequently benefiting SIX stock. However, in 2022, management increased prices, which led to much lower attendance.
As Barchart content partner The Motley Fool mentioned, this framework implies limited pricing power. Ultimately, you don’t want to jump aboard SIX stock without considering the risks.
Main Takeaway: SIX May Offer Solid Short-Term Speculation
How you approach SIX stock may impact your decision on buying shares or holding off. As a long-term buy-and-hold investment, the struggles the company suffered makes me want to wait for further confirmation. As for a short-term trade, the bullish options flow data is difficult to ignore. Plus, consumers are still strong enough where collective impulse buying remains a possibility.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
