Bears Roaring at a Solid Performer

04/16/2012 12:10 pm EST


The extreme bearish option bias towards PNC Financial Services Group (PNC) is more than likely just precautionary hedging against an earnings-induced correction, writes Karee Venema.

Call traders are hitting the exits on PNC Financial Services Group, Inc. (PNC) ahead of the company’s upcoming first-quarter earnings release. In fact, PNC’s Schaeffer’s put/call open interest ratio (SOIR) has risen to 1.68 from 1.10 over the past week. During this time frame, near-term call open interest has plunged by 35.4%. PNC’s SOIR comes in at its loftiest reading of the year, suggesting that short-term speculators are more put-heavy now toward the stock than at any other time during the last 52 weeks.

Further evidencing this waning appetite for PNC calls is data collected from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). As it turns out, traders have bought to open 1.34 puts for every call over the past 20 sessions.

From a technical perspective, PNC has charted a slow and steady path up the charts in 2012, with the stock sitting on a 10% year-to-date gain. From a longer-term perspective, the equity has been bouncing higher off of its 80-day moving averageâ€"a trend line that emerged as a foothold last October.

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Checking out the sentiment backdrop elsewhere on the Street, short interest currently accounts for a low 1.4% of the stock’s available float. It would take just two days to cover these shorted shares given the security’s average daily trading volume.

Taking this into consideration along with PNC’s technical performance, options players’ recent preference for puts may simply be the result of shareholders hedging against potential pullbacks, or locking in paper profits.

Plus, PNC’s impending earnings release may have some of these investors a bit spooked. The financial firm’s bottom line missed expectations in its last announcement, and the shares fell accordingly. Pittsburgh-based PNC is slated to take its turn in the confessional ahead of this Wednesday’s opening bell (April 18).

By Karee Venema of Schaeffer’s Investment Research

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