Are Call Buyers Betting on a Rebound for YRC Worldwide Inc.?

Option volume was relatively light yesterday on YRC Worldwide Inc. (YRCW), but those traders who did brave the option pits on Monday showed an overwhelming preference for calls. On the International Securities Exchange (ISE), speculators bought to open 2,470 calls on YRCW, compared to just 123 puts.

With nearly 36% of the equity's float sold short, it might be natural to assume that short sellers were simply picking up calls to hedge their bearish bets. However, it's interesting to note that Monday's most active strike was YRCW's November 1 call, where 2,104 contracts crossed the tape. This call is currently in the money, meaning it's about four times more expensive than its out-of-the-money counterparts -- so, this strike is not necessarily the most favorable location for a hedge.

In other words, we could be looking at actual optimistic speculation on downtrodden YRCW. About 54% of the contracts traded at the November 1 call on Monday changed hands at the ask price, suggesting they were purchased. Open interest at this strike jumped overnight from 7,180 contracts to 7,439 contracts, confirming that new bullish bets were added.

Of course, this is not to paint an overly rosy picture of sentiment among option players. A quick look at the rest of Monday's option volume also reveals a couple of small synthetic short trades, with speculators honing in on YRCW's December and April series of options to implement this bearish strategy.

Meanwhile, on the charts, YRCW is adding to its year-to-date deficit of nearly 59%. The company's poorly received earnings report earlier this month put the kibosh on a brief rally, and effectively ended the stock's journey beyond resistance from its 10-month moving average.

 Email to a Friend

 Del.icio.us

 Facebook

 Reddit

 Newsvine

 Digg

 Mixx