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MEMC Electronic Materials (WFR) is slated to release its quarterly earnings report after the close tonight, with analysts looking for a profit of 4 cents per share. During the same quarter last year, the company earned a penny per share. Historically, WFR has missed Wall Street's expectations twice, matched once, and beat once, resulting in an average downside surprise of 12.5%.
Options traders have favored calls heavily leading up to the event, according to data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). Specifically, the stock's 10-day ISE/CBOE call/put volume ratio of 6.26 indicates that calls bought to open have outstripped puts purchased by more than six to one. However, this ratio rests in the 43rd percentile of its annual range, indicating that there is plenty of room on the bullish bandwagon.
But this swell in call buying may not be related to bullish option positions at all. During the past month, the number of WFR shares sold short spiked by 36.7%, resulting in nearly 11% of the stock's float being sold short. Given that short interest and call buying are rising in tandem, we could be witnessing bearish investors hedging their positions ahead of the company's quarterly report.
Technically, WFR appears to be in the process of rolling over after losing out to overhead resistance in the 17 region. The shares have pulled their 10-day and 20-day moving averages into a bearish cross, and are currently being squeezed into support at the 15 level.