On Tuesday, as the market continued to slip under the weight of crushing macroeconomic concerns, put options were a popular choice on many stocks. Not only do these bearishly biased options allow you to profit from an equity's decline, they also provide investors with a relatively inexpensive hedging vehicle to insure their stock holdings. With this in mind, let's take a look at yesterday's unusually heavy put volume on alternative energy issue SunPower Corporation (SPWRA) and banking concern Regions Financial Corporation (RF).
Put volume swelled to three times the usual level on SPWRA Tuesday, with about 13,000 contracts crossing the tape. On the International Securities Exchange (ISE) alone, speculators bought to open 6,009 puts on SPWRA, compared to just 217 calls -- resulting in a single-day put/call volume ratio of 27.69.
The day's most active strike was SPWRA's January 2012 5-strike put, where 7,500 contracts were traded. About 99% of these puts changed hands at the ask price, indicating they were most likely purchased, and implied volatility on this LEAPS strike surged 3.1% by the close. Open interest on this long-term strike climbed overnight by 7,100 contracts, confirming that new bearish bets were added here on Tuesday.
The day's skeptically skewed option volume continued a recent trend for SPWRA, which has garnered a 10-day ISE put/call volume ratio of 1.20. This reading ranks higher than 80.5% of comparable readings taken during the past year, indicating that speculators have shown a greater appetite than usual for puts over calls.
Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) points to elevated pessimism. The current reading of 1.03 rests in the 77th annual percentile, revealing that short-term options traders have been more bearishly aligned only 23% of the time during the past year.
Short sellers are also looking for the stock to slide. Despite a decline of nearly 17% during the past month, short interest still represents a hefty 15.2% of SPWRA's available float. At the stock's average daily trading volume, it would take more than a week for all of these pessimistic positions to be repurchased.
But, considering SPWRA's gruesome price action, it's hard to blame traders for adopting a bearish attitude. The shares have shed 54.7% of their value year-to-date, and they're currently trading below several layers of potential resistance. SPWRA is up about 3% in today's session, staging a modest rebound from round-number support at $10 -- but the equity still hasn't climbed high enough to challenge pressure from its 10-day moving average. This trendline, along with its 20-day counterpart, has contained all but one of SPWRA's daily closes since March 19.
As long as the security's less-than-stellar price action persists, SPWRA skeptics will have little motivation to change their opinion of the equity. In fact, not even the recent bout of profit-taking by the shorts has been able to buoy the shares. With the stock continuing to linger near annual-low territory, look for speculators to keep betting bearishly on SPWRA during the near term.
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