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Put Players Align Against Zagg

Options traders seem to think ZAGG is due for a pullback

by 7/12/2012 12:34:47 PM
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Short-term speculators have rarely been more bearish toward Zagg Inc (NASDAQ:ZAGG - 10.46) during the last year, as evidenced by the stock's steadily rising Schaeffer's put/call open interest ratio (SOIR). This metric, which compares put open interest relative to call open interest among options set to expire within three months, currently stands at 1.05. This SOIR ranks above 92% of other such daily readings during the past 52 weeks, indicating that near-term options traders have been more put-heavy on ZAGG only 8% of the time.

Taking a closer look at ZAGG's open interest configuration, the August 15 strike is the most popular short-term put, with 3,784 contracts in residence. With the shares trading just above the $10 level, these back-month puts are already in the money by a healthy margin.

Plus, the 50-day put/call volume ratio for the stock is lingering at its highest level since last fall. During the past 50 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 0.61 put for every call. This ratio arrives in the 81st annual percentile, implying that options traders have purchased puts over calls at a faster clip only 19% of the time during the past year.

50-Day BTO Put/Call Volume Ratio for ZAGG

Evidence of this bearish sentiment can also be found among stock traders, as a hefty 35.5% of ZAGG's float is dedicated to short interest. At the equity's average daily trading volume, it would take more than 13 days for all of these pessimistic positions to be covered.

However, analysts are unanimously upbeat on ZAGG, with all five brokerage firms tracking the stock offering up a "strong buy" endorsement. What's more, the average 12-month price target of $19.80 represents a substantial premium of nearly 87% to Wednesday's close at $10.59.

On the charts, ZAGG has turned in an impressive gain of 49.8% so far in 2012, but the stock has lately been stuck in a sideways holding pattern. Since early May, the shares have been churning in a range loosely defined by the $12.50 level on the upside, and the round-number $10 area on the downside. Meanwhile, a recent breakout above the equity's 40-day, 80-day, and 200-day moving averages appears to have fizzled, with ZAGG trading below all three trendlines at last look.

Daily Chart of ZAGG since January 2012 With 40-Day, 80-Day, and 200-Day Moving Averages

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