Massive covered call trade could net big returns for tech bull, writes Jay Soloff....
OceanFreight Inc. (OCNF) Gets the Cold Shoulder from Put Players
01/15/2010 12:01 am EST
Front-month put players are completely ignoring the low-priced shares of OceanFreight Inc. (OCNF). In the January 2010 series, where the only optionable strike is 2.50, there are currently 345 calls and zero puts in residence. Looking out to February, the landscape grows even bleaker—there are absolutely no puts or calls to be found.
In fact, it's not until March that speculation starts to heat up, with a whopping three option strikes in play. Despite the relatively wide variety, option traders still prefer the 2.50 strike, which carries peak call open interest of 3,888 contracts and peak put open interest of 340 contracts.
With so little attention being paid to OCNF by option traders, it seems downright noteworthy that a total of 20 contracts have traded so far today at the penny stock's March 2.50 call. All of these calls crossed the tape at the ask price, suggesting they were purchased.
OCNF has shed nearly 79% of its value during the past 52 weeks, making it a rather unlikely candidate for a bullish bet. But the preference for calls over puts on OCNF is likely a side effect of its low share price—currently, the equity could stand to lose less than one point of its value before smacking into theoretical "support" at zero. In other words, there's not a lot of downward mobility available to capitalize on.
That hasn't deterred short sellers, though. Short interest on OCNF ballooned by 16.6% during the past month, as an increasing number of traders piled onto the bearish bandwagon. In fact, this surge in short selling could also explain the bias toward calls, as pessimistic stock players could be looking to hedge their positions with options.
In any event, today would have been an opportune time to be short OCNF. The stock is off 1.9% at last check, after the company filed for a $400 million shelf on Tuesday. Today's dip extends the equity's intermediate-term decline beneath resistance at its ten- and 20-week moving averages.
By Elizabeth Harrrow of Schaeffer’s Trading Floor Blog
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