Option Traders Jump in on Two Dry Shippers

09/02/2010 12:01 am EST


Elizabeth Harrow

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

Scanning the list of this week’s stocks with unusual option volume, sector peers Diana Shipping Inc. (DSX) and Excel Maritime Carriers Ltd. (EXM) caught my eye. Both stocks have racked up heavy put volume, especially on Wednesday, suggesting that bears are taking a shine to the struggling dry bulk shipping issues.

Starting with DSX, put volume has skyrocketed to nine times the norm so far, with 1,275 contracts crossing the tape. The majority of this volume has been concentrated at DSX's March 2011 11-strike put, where 1,154 contracts have traded, 99% at the ask price, indicating they were most likely purchased.

Figure 1

With DSX trading right near $12, these long-term puts are out of the money. The stock has added 1.6% at last check, though it's still sitting on a relatively steep year-to-date drop of 18.5%. Currently, the shares are looking up at stiff pressure in the form of their ten-, 20-, and 80-day moving averages, so today's put player could be anticipating a pullback from this triple-barreled trend line resistance.

EXM has also attracted heavy put trading, with four times the usual number of contracts crossing the tape. Nearly 1,500 puts have changed hands on EXM so far, and 1,392 of these have traded at the stock's October 5 strike. About 88% of these October 5 puts have crossed at the ask price, suggesting they were purchased. EXM is currently trading just above $5, placing these puts right at the money.

Figure 2

Today's focus on the 5 strike is interesting, because this chart region has provided a technical floor for EXM since February. However, the stock has been resting heavily on this support level in recent months, and the formerly solid $5 region is now threatening to give way.

By Elizabeth Harrow, contributor, Schaeffer’s Trading Floor Blog
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