Options Activity for Cypress Semiconductor (CY), Hecla Mining (HL) and Warner Chilcott (WCRX)
Monday, August 30, 2010
I hope that your trading is going well, as I know that members of S.O.M.E. are making the most of the market movements and their returns.
Today's newsletter includes a look at a rise in put trading on Cypress Semiconductor (CY), a jump in call trading on Hecla Mining (HL), and an increase in put trading on Warner Chilcott (WCRX).
Cypress Semiconductor (CY)
Options trading was brisk on Cypress Semiconductor Corp. (CY) on Friday, as more than 48,700 contracts crossed the tape. This surge in volume was 17 times the stock's average daily trading volume, according to data from WhatsTrading.com. In addition, options players were feeling pessimistic, as 74% of the volume changed hands on the put side.
Overall, options players have been extremely skeptical of the shares. The put/call open interest ratio (SOIR) for CY comes in at 4.21, as there are more than four puts for every call in open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 98% of all those taken during the past 12 months. In other words, short-term options players have been more pessimistically aligned toward the shares only 2% of the time during the past 52 weeks.
Short sellers are also loading up on bearish bets. During the past month, the number of CY shares sold short increased by 13.9% to 11.7 million. This accumulation of bearish bets accounts for more than 7% of the company's total float. A continuation of this trend could create more downward pressure for the shares.
Meanwhile, Wall Street has yet to turn its back completely. According to Zacks, the stock has earned 11 "buy" ratings, five "holds," and two "sells." This configuration leaves ample room for potential downgrades.
Technically speaking, the shares of CY are down more than 5% since the beginning of the year. After reaching a near-term peak in the 14 region in April, the stock has retreated under pressure from its declining 10-week and 20-week moving averages. The equity is currently attempting to hold onto support at the 10 level.
Hecla Mining (HL)
Hecla Mining Co. (HL) was the center of some heavy options trading on Friday, as the security saw more than 51,500 contracts change hands. This surge in volume was more than eight times the stock's average daily trading volume of 6,421 contracts, according to data from WhatsTrading.com. Meanwhile, options players were optimistic toward the shares, as 87% of the volume crossed the tape on the call side.
Despite Friday's preference for calls, the International Securities Exchange (ISE) reports an increase in call trading. During the past 10 trading sessions, 7.5 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 74.8% of all those taken during the past 12 months, pointing to a rising optimism.
However, sentiment is far from an optimistic extreme, as the SOIR for HL comes in at 0.46, which is higher than 77% of all those taken during the past 12 months. In other words, short-term options players have been more pessimistically aligned toward the shares only 23% of the time during the past year.
Short sellers have flocked to the stock in an attempt to benefit from its decline. During the past month, the number of HL shares sold short increased by nearly 7% to 39.3 million. This accumulation of pessimistic positions accounts for 15% of the company's float and is seven times the stock's average daily trading volume. Should short sellers continue to add to their bearish bets, it could pressure the security through key support.
From a technical perspective, the equity has tumbled more than 16% since the beginning of the year. However, the security is attempting to stage a comeback, as it has bounced off support at the 4.50 level and climbed above its 10-week and 20-week moving averages. On the other hand, the stock continues to make a series of lower highs as it clings to support in the 4.50 level, indicating waning strength.
Warner Chilcott (WCRX)
Warner Chilcott Plc (WCRX) has caught the attention of traders, as the firm recently announced an $8.50 special dividend. The relative size of the dividend triggers a Nasdaq quirk, which leaves a gap between the "record date" and "ex-dividend" date.
Somebody owning the shares before Monday's "record date" will owe tax on the dividend. Those buying shares between then and the Sept. 9 "ex-dividend" date will receive the $8.50-a-share cash payment, but owe no tax on it.
Those buying the shares during the 10-day gap for, say $28.50, would have a cost basis of $20 plus the right to an $8.50 payment classified as a tax-free return of capital. Normally, buyers would pay tax at 15% or more on a dividend paid just after purchasing a stock, discouraging such moves when the payout is large. Sellers also will find the tax landscape altered next week. If they have owned shares less than a year, then $8.50 per share of the sale price doesn't count toward capital gains. Instead, that amount is likely taxed as a dividend at 15%. For long-term holders who sell, the outcome is neutral as dividends share the same top rate as long-term gains.
Options players flocked to the security on Friday, as more than 29,900 contracts changed hands. This jump in volume was more than 16 times the stock's average daily trading volume of 1,854 contracts, according to data from WhatsTrading.com. In addition, roughly 53% of the volume changed hands on the put side.
Puts have been the options of choice on the ISE. During the past 10 trading sessions, 1.6 puts have been purchased to open for every one call purchased to open. This ratio of puts to calls is higher than 68% of all those taken during the past year. In other words, pessimism is on the rise toward the shares.
Furthermore, the SOIR for WCRX comes in at 0.81, which is higher than 67% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 33% of the time during the past 12 months.
However, Wall Street is enamored of the company. According to Zacks, the stock has earned 10 "buy" ratings and three "holds." Any downgrades from this group could spell trouble for the shares.
Technically speaking, the shares of WCRX are down less than 1% since the beginning of 2010. The equity has breached resistance at the 29 level during the past two weeks, but now has retreated to the 28 level. The equity is currently resting support at its rising 20-day moving average, which could help to springboard the shares higher once again.
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