Schaeffer's Trading Floor Blog

Stillwater Mining Company (SWC) Traders Wager On Another Multi-Year High

Short sellers may be hedging their bearish bets with SWC calls

by 5/19/2014 1:14 PM
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Option traders have been increasing their bullish exposure on Stillwater Mining Company (NYSE:SWC) in recent weeks, as the stock makes its way into multi-year high territory. Since May 1, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio has surged to 148.00 from 20.12. What's more, the current ratio ranks in the 94th percentile of its annual range, meaning calls have been bought to open over puts with more rapidity just 6% of the time within the past year.

Echoing this call-skewed bias is SWC's Schaeffer's put/call open interest ratio (SOIR) of 0.13, which ranks lower than 96% of similar readings taken in the past year. Simply stated, over the last 52 weeks, short-term speculators have rarely been as call-heavy toward the equity as they are now.

In particular, a number of call buyers have targeted the July 18 strike, where 7,800 contracts are currently in residence. Since March 7, nearly 3,900 long calls have been initiated here, and it would take a rally of roughly 7% from SWC's present price for these calls to be in the money. At last check, delta for the call was docked at 0.25, implying a roughly 1-in-4 chance the option will finish in the money at the close on Friday, July 18 -- when back-month contracts expire.

Outside of the options pits, trader sentiment runs counter to this bullish bias. In fact, although short interest declined 7.3% during the last two reporting periods, it still accounts for roughly 16% of the stock's available float, and would take more than seven days to cover, at SWC's average pace of trading. Considering the security has rallied more than 36% so far this year, a portion of the recent call activity -- particularly at out-of-the-money strikes -- could be at the hands of short sellers hedging against a continued move north.

In today's session, things aren't going so well for SWC short sellers, with the stock up 3.3% at last check to trade at $16.78. What's more, the equity tagged the $16.94 mark earlier -- its loftiest perch since July 2011. Should the security continue to make its way up the charts, a further capitulation among short sellers could add fuel to SWC's fire.

On the fundamental front, Stillwater Mining Company (NYSE:SWC) announced on Friday that it has entered a five-year platinum group metal refining and sales agreement with U.K.-based Johnson Matthey PLC. The news was met with a price-target hike to $20 from $18 at BB&T. As a point of comparison, the consensus 12-month price target for SWC stands at a slimmer $18.20.

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