Post-Sandy Winners & Losers
11/02/2012 8:00 am EST
Andrea Kramer of Schaeffer’s Investment Research examines the fundamental, technical, and sentiment portraits of several companies that could be impacted by Hurricane Sandy.
Hurricane Sandy has shuttered US markets for two days this week, marking the first weather-related closure in 27 years. As the "Frankenstorm" barreled into the East Coast, traders kept tabs on a handful of sectors that could see a positive or negative impact, including insurers, airlines, and home-improvement retailers. Against this backdrop, we decided to take a look at the fundamental, technical, and sentiment portraits of The Allstate Corporation (ALL) and The Chubb Corporation (CB), Delta Air Lines, Inc. (DAL) and US Airways Group, Inc. (LCC), and The Home Depot, Inc. (HD) and Lowe's Companies, Inc. (LOW).
- ALL said it's placed catastrophe response teams in Virginia, Pennsylvania, and North Carolina, in order to expedite response times after the storm. On the charts, the shares have tacked on nearly 48% during the past year, ushered higher atop their 10-week and 20-week moving averages. More recently, the stock pulled back to the former of these trendlines, after touching a four-year peak of $42.81 earlier last month. On the sentiment side, the options crowd has grown increasingly wary of ALL. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.40—in the 85th percentile of its annual range. In other words, option buyers have initiated bearish bets over bullish at a much faster-than-usual clip during the past couple of weeks.
- CB was busy shuffling staff from its New Jersey headquarters to its Arizona offices, in order to make sure claims are processed at the fastest pace possible. Technically, CB has been on a quest for new highs, touching a record of $81.80 earlier in the month. Like its sector peer, however, the options pits have been upping the bearish ante. On the ISE, CBOE, and PHLX, the security's 10-day put/call volume ratio sits at 7.58, indicating that traders have bought to open nearly eight puts for every call during the past two weeks. What's more, this ratio sits just four percentage points from an annual high, hinting at a healthier-than-usual appetite for pessimistic positions of late.
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- Like most of its peers, DAL has been forced to cancel hundreds of flights due to Hurricane Sandy. Prior to the market shutdown, the shares of DAL were struggling to maintain their perch atop the $10 level, ending last week in single-digit territory for the first time since late September. What's more, the stock could run into some options-related headwinds in the near term, should DAL attempt to stage a rebound. In the November series of options, the overhead 10 strike is home to peak call open interest, with nearly 7,500 contracts outstanding. Meanwhile, any post-hurricane struggles could be exacerbated by downgrades; currently, DAL sports nine "strong buys" and one "buy" endorsement from analysts, compared to two lukewarm "holds" and not a single "sell" rating.
- LCC said it would likely have to cancel close to 2,000 flights due to Sandy, and its plans to move planes from the hurricane zone could cause additional delays. On the charts, LCC has spent the past few months embarking on a series of higher lows, underscored by support atop its 32-week moving average. However, the stock has struggled to surmount the $12-$12.50 region, which served as support from late May to mid-July. On Wall Street, LCC remains plagued by pessimism, with short interest representing nearly a week's worth of pent-up buying demand, at the stock's average pace of trading. Plus, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.04 ranks in the 74th percentile of its annual range, suggesting short-term options traders are more put-biased than usual right now.
- Wall Street will be keeping an eye on HD, which many expect to see a post-hurricane boost to sales, as homeowners attempt to repair damages. Prior to today, the shares had outperformed the broader S&P 500 Index (SPX) by more than 13 percentage points in the past 60 sessions, touching a fresh 12-year acme on Oct. 5. Nevertheless, near-term options traders are more put-skewed than usual, as evidenced by HD's SOIR of 1.51, which stands higher than 63% of all other readings of the past year. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) sits at 100, suggesting the stock's short-term options are relatively inexpensive relative to the probability of an outsized move on the charts.
- For the same reasons, traders will also be eyeing sector peer LOW, which touched a multi-year high of its own on Oct. 19. However, options speculators have been scooping up puts over calls at a near annual-high clip during the past couple of weeks, as the stock's 10-day put/call volume ratio of 2.40 stands just five percentage points from a 12-month peak. As such, the security's SOIR has ascended to 1.06—in the 91st percentile of its annual range. In other words, near-term option traders have rarely been more put-heavy during the past year.
By Andrea Kramer of Schaeffer’s Investment Research