Schaeffer's Trading Floor Blog

Bears Attack as Liquidity Services, Inc. (LQDT) Heads Lower

High levels of pessimism aren't surprising, given LQDT's long-term struggles

by 4/7/2014 1:48 PM
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Online auction house Liquidity Services, Inc. (NASDAQ:LQDT) has been a favorite among short-term options traders of late. During the past week, in fact, call open interest and put open interest have each roughly doubled to 12,338 contracts and 19,318 contracts, respectively.

Consequently, the stock's Schaeffer's put/call open interest ratio (SOIR) -- which measures open interest among options with a shelf-life of three months or less -- registers at a top-heavy 1.57. This reading is just 2 percentage points from an annual high, signifying traders' stronger-than-usual preference for short-term puts (relative to calls). For comparison, LQDT's SOIR stood at 1.05 on March 24.

Sentiment is bearish elsewhere, as well. For one, a brow-raising 31.2% of Liquidity Services' float is currently sold short. At the stock's average daily trading volume, it would take nearly five weeks for short sellers to cover these positions. For another, six out of the 10 analysts following LQDT have assigned the shares a "hold" or worse rating, versus one "buy" and three "strong buy" endorsements.

On the charts, the security has done little to warrant optimism. The stock is down nearly 44% on a year-over-year basis, and is off almost 20% in 2014 to trade at $18.20. Also, a recent rally was rejected at the shares' 200-day moving average last week, when the equity surrendered 14% on Tuesday. Additionally, LQDT lost another 17.9% over the next two sessions after securing a Department of Defense contract that's expected to result in higher costs, lower sales, and tighter margins in fiscal 2015.

Fortunately, for those looking to purchase short-term options on Liquidity Services, Inc. (NASDAQ:LQDT), the price has declined dramatically since last Tuesday, from a volatility perspective. Specifically, Schaeffer's Volatility Index (SVI) for the stock has dropped to 63% (in the 52nd percentile of its annual range) from 86% (a 12-month high).

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