Schaeffer's Trading Floor Blog

Keurig Green Mountain Inc (GMCR) Traders Agree: Today Was a Good Day

GMCR is enjoying a more than 14% post-earnings pop today

by 5/8/2014 1:42 PM
Stocks quoted in this article:

Keurig Green Mountain Inc (NASDAQ:GMCR) wowed the Street last night, when it reported fiscal second-quarter earnings results that handily beat analysts' estimates and announced an expanded partnership with The J.M. Smucker Company (NYSE:SJM). As such, the stock has shot 14.3% higher today, perhaps pleasing the bulls that flooded the equity's options pits in the weeks leading up to the announcement.

In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.39 ranks in the 79th percentile of its annual range. Simply stated, long calls have been initiated over puts at a faster-than-usual clip in recent weeks.

Even more telling of this bias among call players is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.01, which ranks in the lowest percentile of its annual range. In other words, short-term GMCR speculators are more call-heavy now than at any other time in the past year.

Looking at the front-month series of options, a number of speculators have targeted the May 92.50 call, where 2,653 contracts are currently in residence. With GMCR closing at $92.21 on Wednesday, these calls were just a chip-shot out of the money. However, thanks to today's earnings-induced surge that has GMCR flirting with the $105.41 level -- its highest perch since early April -- the calls have moved comfortably into the money.

Despite all of the optimism toward GMCR in the options pits, sentiment elsewhere on the Street has tended toward the skeptical side. For starters, short interest accounts for 12.3% of the stock's available float, representing more than a week's worth of pent-up buying demand. Given the lofty amount of shorted shares, a portion of the recent call buying activity -- particularly at out-of-the-money strikes -- may have been at the hands of short sellers hedging against a post-earnings pop.

Meanwhile, of the 12 covering analysts, six maintain a "buy" or better rating, compared to six lukewarm "hold" suggestions. From a contrarian perspective, should Keurig Green Mountain Inc (NASDAQ:GMCR) continue its earnings-induced momentum, a capitulation by short sellers and/or a re-evaluation of ratings from the brokerage bunch could give the equity an additional assist.


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