Schaeffer's Trading Floor Blog
Stocks quoted in this article:

Among the stocks attracting attention from options traders lately are financial firm Bank of America Corp (NYSE:BAC), firearm issue Smith & Wesson Holding Corp (NASDAQ:SWHC), and alternative energy concern Trina Solar Limited (ADR) (NYSE:TSL). Below, we'll break down how option buyers are positioning themselves, and how much speculators are willing to pay for their bets on BAC, SWHC, and TSL.

  • BAC has spent the past few months trading between $15 and $16, and yesterday, the equity settled squarely in the middle of this range, at $15.52. Option traders are keeping the faith, though, per the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 5.54, which ranks in the 86th percentile of its annual range. Simply stated, calls have been bought to open over puts at an accelerated clip in recent weeks. Currently, premium on BAC's front-month options is lingering near historically low levels, as evidenced by the equity's Schaeffer's Volatility Index (SVI) of 17%, which ranks lower than 88% of similar readings taken in the past year. In today's session, Wall Street will be awaiting confirmation of Bank of America Corp's record $17 billion settlement for its role in the 2008 financial crisis.

  • Put buyers have picked up the pace on SWHC, ahead of next Tuesday evening's fiscal first-quarter earnings report. At the ISE, CBOE, and PHLX, the stock's 10-day put/call volume ratio of 0.88 ranks in the bearishly skewed 80th annual percentile. This negative tone isn't too surprising, considering SWHC shed 8.7% the day after the company unveiled its fiscal fourth-quarter results in June. Despite the uncertainty surrounding this scheduled event, front-month SWHC options are pricing in relatively low volatility expectations for the stock. Specifically, the security's SVI of 43% ranks lower than 64% of comparable readings taken in the previous 12 months. On Wednesday, Smith & Wesson Holding Corp settled at $13.19, and now sits 2.2% lower on a year-to-date basis.

  • Also stepping up to the earnings plate next Tuesday is TSL, with results due out ahead of the open. The company handily beat bottom-line estimates in late May, sending the shares nearly 31% higher in the subsequent session. Option traders are hoping for more of the same, per the security's 10-day ISE/CBOE/PHLX call/put volume ratio of 11.72, which ranks just 11 percentage points from an annual bullish peak. With 22.6% of the stock's float sold short, though, a portion of this call buying could be a result of shorts hedging their bearish bets against another earnings-induced surge. Regardless, now is an opportune time to scoop up front-month Trina Solar Limited (ADR) options at a relative bargain -- the equity's SVI of 61% ranks in the 13th percentile of its annual range. Shares of TSL finished at $13.15 on Wednesday -- notching their second consecutive close north of $13 for the first time since June 2.

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