Schaeffer's Trading Floor Blog

GrafTech International Ltd (GTI) Bears Getting Bold

Option bears and short sellers alike are swarming GTI

by 2/27/2014 1:13 PM
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Option bears have been pouncing on GrafTech International Ltd (NYSE:GTI) in recent weeks and months. On the Chicago Board Options Exchange (CBOE), the graphite electrode producer has racked up a brow-raising five-day put/call volume ratio of 11.69. In other words, nearly a dozen puts have been bought to open for each call during the last week.

Taking a step back, GTI's 50-day International Securities Exchange (ISE), CBOE, and NASDAQ OMX PHLX (PHLX) put/call volume ratio checks in at 2.42. While this reading is not as lofty as the one previously cited, it still registers in the 99th percentile of its annual range. Simply stated, option traders have scooped up puts over calls at a near-extreme rate during the last two-plus months, relatively speaking.

Not surprisingly, Schaeffer's put/call open interest ratio (SOIR) for GrafTech International is 1.71, meaning put open interest holds a solid advantage over call open interest among options with a shelf-life of three months or less. What's more, the SOIR also ranks higher than 99% of similar readings from the past 12 months, indicating short-term speculators have rarely been so put-focused.

Digging deeper, peak put open interest for the front-month series resides at GTI's March 10 strike, where there are 10,563 contracts to be found. Most of them were bought to open, suggesting traders expect the shares to descend below $10 by the closing bell on Friday, March 21, when the options expire.

Even outside of the options pits, sentiment toward GrafTech is negative. For instance, short sellers have displayed a high degree of interest in the stock, as 17.6% of its float is now sold short. At the equity's average daily trading volume, it would take more than three weeks to cover these short positions.

None of the aforementioned skepticism is particularly surprising, given GTI's lackluster technical performance. During the last 60 sessions, the shares have underperformed the broader S&P 500 Index (SPX) by 19.5 percentage points. However, the stock's recent pullback was contained by its rising 200-day moving average, and the security is up 12.3% to $10.65 this afternoon, despite this morning's less-than-glowing fourth-quarter earnings report.

Suffice it to say, GrafTech International Ltd (NYSE:GTI) may be in a prime position to benefit from continued technical gains. Should today's upward momentum continue, an unwinding of skepticism among option bears and shorts could push the shares higher.

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