Options Activity for Friday, July 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.

Options traders set their sights on Research In Motion Limited (RIMM) and General Electric Company (GE) yesterday. While calls were popular on RIMM, a recent rise in short interest casts dubious light on this apparently bullish option activity. Meanwhile, GE hasn't garnered much attention from the shorts, but it's certainly become a popular target among put buyers.

Research In Motion Limited (RIMM)

RIMM racked up heavy call volume on Wednesday, with volume rising to 1.09 times the expected level. Approximately 47,000 calls were exchanged during the course of the session, compared to the equity's predicted daily call volume of 43,000 contracts.

On the International Securities Exchange (ISE) alone, traders bought to open 3,710 calls, compared to 1,361 puts. RIMM's single-day ISE call/put volume ratio of 2.73 reveals that bullish bets were nearly three times more popular than their bearish counterparts.

In fact, RIMM's 10-day ISE call/put volume ratio of 1.82 rests in the 71st annual percentile, confirming that traders have been purchasing calls over puts at a faster pace than usual in recent weeks.

Short interest on RIMM has been ramping up lately. The number of shares sold short escalated by 15.4% during the past month, and 13.7% during the most recent reporting period. Now, these bearish bets account for roughly 4% of RIMM's float.

With short interest and buy-to-open call volume climbing in tandem, it's always worth considering the notion that short sellers are utilizing calls to limit their upside risk. This is particularly true of RIMM, as rumors have been swirling lately that its revamped BlackBerry may be the "iPhone killer" the company has been searching for.

In fact, hedging seems to be the likeliest explanation, considering RIMM's recent bout of technical weakness. The stock has slumped about 18% year-to-date, and it's currently battling stubborn pressure from its 10-week moving average. This trendline hasn't been surmounted on a weekly closing basis since mid-April, having thwarted all of RIMM's recent rally attempts.

General Electric Company Puts were the options of choice on GE yesterday, as traders on the ISE bought to open 2,344 of these bearishly oriented contracts. By comparison, just 912 calls were purchased on GE during the course of Wednesday's trading, netting the shares a single-day ISE put/call volume ratio of 2.57.

The day's downbeat option activity seems to be part of a growing trend, as GE sports an inflated 10-day ISE put/call volume ratio of 0.79, in the 82nd annual percentile. In other words, traders on this exchange have purchased puts over calls at a faster clip just 18% of the time during the past year.

In the same skeptical vein, GE's SOIR is hovering near annual-high territory. The stock's SOIR of 1.14 indicates that puts outnumber calls among options slated to expire within the next three months, and this ratio ranks higher than 98% of comparable readings taken during the past year -- just two percentage points from a pessimistic peak.

Put players on Wednesday honed in on GE's September series of options. The stock's September 11 put was most active, with 6,720 contracts crossing the tape. About 99% of these puts traded at the ask price, indicating they were purchased, and open interest climbed overnight by 6,624 contracts, confirming the addition of new bearish bets.

On the other hand, short sellers are virtually ignoring GE. The stock's short-to-float ratio stands at a scant 0.7%, suggesting that the bears prefer to express their skepticism via puts. This negative sentiment from options traders seems in line with GE's recent technical troubles. The stock is currently battling pressure from its 160-day and 200-day moving averages, which have conspired to keep GE pinned beneath the $16.50 level since late May.

However, during the short term, heavy put open interest could actually work in GE's favor. The stock's out-of-the-money August 14 and 15 put strikes carry a combined total of 65,118 contracts in open interest, which could provide options-related support as expiration draws closer.

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