Put Buyers Ruling the Roost at Moody’s (MCO)

11/04/2009 12:01 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Puts have been the options of choice lately on Moody's Corporation (MCO). Last Friday, traders on the International Securities Exchange (ISE) bought to open 2,100 puts on MCO, compared to just 32 calls. Meanwhile, during the past five days, ISE speculators have snapped up 3,759 puts and only 208 calls. In other words, 18 times more bearish bets than bullish have been purchased within the past week.

MCO price chartAs a result, MCO's ten-day ISE put/call volume ratio arrived today at 4.22, as puts bought to open have more than quadrupled calls during the past two weeks. This ratio ranks higher than 61.2% of other such readings taken during the past year, suggesting that pessimistically oriented options have been slightly more popular than usual of late.

In the front-month series, peak put open interest of 37,814 contracts rests at the November 20 strike. Not far behind is MCO's November 22.50 put, which carries open interest of 23,283 contracts. With the stock trading near $23 at last check, bearish bettors are favoring out-of-the-money options. In other words, speculators are looking for the shares to slide prior to November expiration.
On the charts, the equity's momentum is running in the bears' favor. MCO shares dropped last Thursday in the wake of the firm's most recent earnings report, and fell again on Friday after a regulatory filing revealed that Warren Buffett's Berkshire Hathaway (BRK) trimmed its stake in Moody's by nearly 3% last week.

MCO's recent losses simply extend the equity's long-term downtrend. The stock has been pressured lower by its ten- and 20-month moving averages since May 2007. However, the $20 level has acted as tenuous support since the fourth quarter of 2008, and the heavy accumulation of out-of-the-money puts at the November 20 strike could reinforce existing support in this round number region.

By Elizabeth Harrow of Schaeffer’s Trading Floor Blog

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