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Option Activity Alert: Call Buying Surges on MEMC Electronic Materials, Inc.

Despite the stock's recent slide, speculators are snapping up bullish bets

by Elizabeth Harrow (eharrow@sir-inc.com) 11/4/2009 12:30 PM

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Call volume popped yesterday on MEMC Electronic Materials, Inc. (WFR: sentiment, chart, options), with activity surging to seven times the usual level. During the course of the session, traders on the International Securities Exchange (ISE) bought to open 7,336 calls on WFR, compared to just 696 puts. The stock's single-day call/put volume ratio of 10.54 reveals a clear preference for bullish bets over their bearish counterparts.

WFR SOIR In fact, WFR's 10-day ISE call/put volume ratio stands at a similarly skewed 9.04, as more than nine times more calls than puts have been bought to open during the past two weeks. This ratio ranks higher than 86.8% of other such readings taken within the previous year, as speculators have rarely snapped up calls over puts at a faster pace.

With calls quickly gaining popularity, WFR's Schaeffer's put/call open interest ratio (SOIR) has backpedaled from its Oct. 20 perch at 0.73, which marked an annual bearish peak for the indicator. Today, the stock's SOIR checks in at a slimmer 0.62, in the 95th annual percentile. This relatively high reading suggests that there's still plenty of room for sentiment to swing toward the bullish end of the spectrum.

Returning to Tuesday's action, the most active strike was WFR's November 13 call. This near-the-money option saw 14,819 contracts cross the tape, with most of these calls changing hands closer to the ask price. Implied volatility jumped 13.9% as a result, and open interest at this strike rose overnight from 1,455 contracts to 4,943 contracts. In short, it seems safe to say that traders were adding new bullish bets here yesterday.

WFR short interest Also in play on Tuesday was WFR's January 2010 14 call, where open interest increased from 3,390 contracts to 7,727 contracts as a result of the day's option activity. The 14 strike was also a popular choice in the December series -- WFR's December 14 call saw open interest climb overnight from 715 contracts to 1,975 contracts. With the shares trading near $12.60 at last check, near-term call players are gravitating toward narrowly out-of-the-money strikes.

Elsewhere on Wall Street, short interest has been declining on WFR. The number of shares sold short fell by 3.3% during the past month, and contracted by 7.6% during just the most recent reporting period. Now, short interest accounts for a respectable 4.9% of the equity's float.

However, it would be premature to assume that short sellers are growing more upbeat toward WFR. Judging by the stock's lackluster price action of late, it seems likely that the recent decline in short interest resulted from a bout of profit-taking, rather than a rush to cover.

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(11/20/2009 2:05:53 PM)

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Option Activity Alert: Rising Bullish Speculation on Rosetta Resources Inc.

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Option Activity Alert: Call Buying Surges on MEMC Electronic Materials, Inc.

Despite the stock's recent slide, speculators are snapping up bullish bets

by Elizabeth Harrow (eharrow@sir-inc.com) 11/4/2009 12:30 PM

WFR

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