Short Opportunity for Philip Morris?

04/07/2009 10:18 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Philip Morris International Inc. (PM) saw a single-day spike in call trading last Friday. During the course of the session, option players on the International Securities Exchange (ISE) bought 1,376 calls and 45 puts. The stock's one-day call/put volume ratio on the ISE was a bullishly skewed 10.67, dwarfing its ten-day call/put volume ratio of 2.44.

PM price chartThe bulk of Friday's volume was centered on the security's June 40 and June 45 calls. The former option saw 1,935 contracts cross the tape on open interest of 12,799, while the latter option saw 1,023 contracts change hands on open interest of 6,345.

Open interest jumped on both calls after Friday's trading settled out, and now stands at 13,906 contracts for the June 40 call, and 7,103 contracts for the June 45 call. This indicates that new positions were added at both of these out-of-the-money strikes during the course of Friday's trading.

Currently, the 40 strike is home to peak call open interest in the April, May, and June series of options. However, the technical setup for PM indicates that a short-term jump above this round-number region is unlikely. The stock has been ushered lower by its ten- and 20-week moving averages since September 2008, and these troublesome trend lines are currently descending through the upper 30s.

If optimistic option traders grow frustrated with PM's lackluster price action, the unwinding of bullish bets could contribute to a continued slide in the share price. The stock has already shed 16.8% of its value in 2009.

By Nick Perry of Schaeffer's Trading Floor blog

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