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Pessimism Runs High on Patriot Coal

Underperforming PCX has been heavily targeted by put players and short sellers

by 6/29/2012 12:11:15 PM
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Options traders have adopted a bearish stance lately on Patriot Coal Corporation (NYSE:PCX - 1.35). During the past five sessions, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 12,621 puts on PCX, along with just 4,158 calls. In other words, roughly three times more bearish bets than bullish have been purchased during this time frame.

Over the past 10 trading days, in fact, PCX has racked up a put/call volume ratio of 1.59 on the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). This ratio ranks above 93% of other such readings taken during the past year, as speculators have shown a healthier appetite for puts over calls only 7% of the time.

Further cementing this pessimistic slant is PCX's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.37, in the 98th annual percentile. So, historically speaking, traders have rarely bought to open puts over calls at a faster clip.

PCX short interestThe Schaeffer's put/call open interest ratio (SOIR) for the coal stock now stands at 1.25, which outranks 88% of comparable annual readings. This elevated SOIR reading implies that short-term speculators have been more put-heavy only 12% of the time.

And the negative sentiment toward PCX isn't limited to the options pits. Short interest ramped up by 8.1% during the most recent reporting period, as a fresh batch of bears placed their bets against the commodity concern. Now, short interest is lingering at a multi-year high, and currently accounts for more than 28% of the equity's float.

Likewise, analysts have piled onto the bearish bandwagon. Not one of the 13 brokerage firms following PCX recommends buying it -- but there may still be room for this group to grow even gloomier. The average 12-month price target on the shares stands at $4.77, which represents a steep 270% premium to Thursday's close at $1.29. Any price-target cuts could weigh heavily on PCX going forward.

After checking out the charts, it's not too difficult to understand the broadly negative sentiment surrounding PCX. The stock has plunged to a loss of more than 94% over the past 52 weeks, having shed 84.8% of its value in 2012 alone. In recent months, the shares have been guided steadily lower by resistance at their 10-day, 20-day, and 40-day moving averages. In fact, PCX is up about 4% at last look -- but the stock peaked earlier at $1.45, just shy of its 20-day trendline.

Daily Chart of PCX since February 2012 With 10-Day, 20-Day, and 40-Day Moving Averages


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