Large options trades can provide clues to make market moves, notes Jay Soloff....
Option Activity Surges in These Two Stocks
08/03/2010 12:01 am EST
Option volume is pretty healthy to start the week, with 4.08 million calls and 3.15 million puts changing hands by mid-day on Monday. Among the stocks attracting attention today are Cliffs Natural Resources Inc. (CLF) and Dollar Thrifty Automotive Group, Inc. (DTG), with option volume outpacing the predicted level on both securities.
Starting with CLF, the stock was up roughly 7% following the firm's acquisition of INR Energy's coal operations. Call volume has ramped up to 1.86 times the norm as a result, with more than 9,800 contracts crossing the tape so far. Most active is CLF's at-the-money August 60 call, where 1,983 contracts have traded—57% at the ask price, indicating they were purchased.
Thanks to Monday's price surge, CLF is trading above its 20-week moving average for the first time since mid May. This trend line hasn't been surmounted on a weekly closing basis since late April.
In light of CLF's bullish move, there's ample room for sentiment to improve on Wall Street. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.05 ranks in the 80th annual percentile, suggesting that short-term options traders have been more bearishly aligned only 20% of the time. Elsewhere, short interest represents more than 5% of CLF's float.
DTG, meanwhile, is racking up heavy option activity in advance of its quarterly report. The company is slated to release its second-quarter results before tomorrow's opening bell, with analysts looking for a profit of $1.16 per share. DTG has handily exceeded Wall Street's expectations in each of the past three reporting periods.
Appropriately enough, then, calls are the options of choice ahead of the event, with 21,000 contracts crossing the tape—three times the expected amount. Most active are DTG's September 55 and October 60 calls, where traders appear to be buying new bullish bets. With DTG trading near $50, both strikes are out of the money.
On the charts, DTG is staring up at potential double-top resistance in the $52 region. This area marked a peak for the shares during the first week of May, and should be a key level to watch in tomorrow's trading.By Elizabeth Harrow, contributor, Schaeffer’s Trading Floor Blog
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