Large options trades can provide clues to make market moves, notes Jay Soloff....
Traders Snapping Up Calls on Shutterfly
12/16/2011 7:00 am EST
Option traders are buying bullishly-oriented calls on the online photo company at an above-average clip lately, possibly anticipating an upcoming break of stubborn nearby resistance.
Goldman Sachs started Shutterfly (SFLY), the online photo product company, with a "neutral" rating this week, along with a price target of $29, but that didn't stop the equity from tagging a new 52-week low of $23.50 on Wednesday.
However, this latest price dip hasn't discouraged call players, as more than 3,600 of these options have changed hands so far, reflecting 11 times the stock's expected intraday volume mid-week.
Nearly 3,000 calls were traded at the out-of-the-money January 2012 25 strike, the majority of them at the ask price, pointing to buyer-fueled volume. This option is currently home to open interest of just 779 contracts, making it safe to say that new positions are now being initiated here.
What's more, the Internet photo service's ten-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at 1.25, confirming that calls bought to open have outnumbered puts during the past couple of weeks. This ratio ranks in the 61st percentile of its annual range, indicating that traders are buying bullish options over bearish at a slightly-faster-than-usual pace.
However, short interest on SFLY jumped by 13.15% during the past two reporting periods, which implies that some of the recent call volume might be attributed to short sellers seeking to hedge their bets. Either way, these bearish plays make up a hefty 21.51% of the equity's float. At the stock's average daily trading volume, it would take more than four days to cover these shorted shares.
SFLY has been a technical laggard in 2011, having shed roughly 31% of its value year-to-date, and underperforming the broader S&P 500 Index (SPX) by a whopping 54% over the past 60 sessions. On the charts, the stock has been plagued by stubborn resistance at its ten-day moving average since late October.
If you’re looking for a stock with signs that it may be ready to turn, SFLY call options could be your opportunity.
By Terri Stridsberg of Schaeffer’s Research
Related Articles on OPTIONS
A straddle is a trade that engages both at-the-money put and call options, notes Robb Ross....
Paul Cretien describes opportunities in the grain complex through pairs trades....
Jay Soloff provides a trade for those expecting a sharp increase in volatility in March. See him liv...