Schaeffer's Trading Floor Blog
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While no specific date has been confirmed, DryShips Inc. (DRYS) is scheduled to release its fourth-quarter earnings "sometime this month," according to a company spokesman. First Call reports that analysts are expecting quarterly profit of 66 cents per share, down sharply from $4.13 per share in the year-ago period. While no fewer than 6 analysts have slashed their earnings expectations ahead of the event, investors are displaying a more upbeat attitude.

During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 31,144 calls on DRYS, compared to just 6,838 puts. The stock's 10-day call/put ratio on the ISE is 4.55, indicating that bullish bets are nearly 5 times more popular than their bearish counterparts.

DRYS SOIRThanks to the recent influx of call contracts, the equity's Schaeffer's put/call open interest ratio (SOIR) arrived today at 0.46, with calls more than doubling puts among short-term options. This SOIR ranks lower than 99% of other such readings taken during the past year, indicating that option players have been more bullishly aligned toward DRYS just 1% of the time in the previous 52 weeks.

In the front-month options series, peak call open interest is docked at the out-of-the-money 5 strike, with 32,091 contracts in residence. Another sizable accumulation of 25,251 contracts can be found overhead at the March 7.50 call. This configuration suggests that some investors are expecting DRYS to climb the charts post-earnings.

Meanwhile, with DRYS trading near $4, there is only 1 possible out-of-the-money put strike in the March series for bearish investors to place their bets. As a result, skeptical traders are opting instead to short the stock. Short interest on DRYS jumped by nearly 12% during the most recent reporting period, and now accounts for 27.5% of the equity's available float.

The simultaneous rise in short interest could indicate hedging activity, or it might reveal that there are 2 warring factions on Wall Street. Either way, the current accumulation of shorted DRYS shares translates to just 0.3 times the stock's average daily volume. Even if the company reports an upside surprise in its upcoming earnings release, there appears to be very little sideline cash to support a post-event rally.

Overall, investors should be wary of DRYS ahead of earnings. There seems to be a glut of optimism among investors, and the bearish contingent represents only a slim supply of potential buyers. Any gains in the stock following a better-than-expected report could be short-lived, since many traders have already priced in their high hopes. Plus, thanks to the equity's 94.6% plunge during the past year, multiple resistance levels loom overhead to thwart potential rally attempts.


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