Call volume has been building steadily on Dr Pepper Snapple Group Inc. (DPS: sentiment, chart, options). During the past five days, traders on the International Securities Exchange (ISE) bought to open 4,649 calls on the soft drink stock, compared to zero puts that were purchased. In other words, option players are showing a clear bias toward bullishly oriented options over their bearish counterparts.
As a result, the security's 10-day ISE call/put volume ratio is docked at a lofty 54.35, confirming that traders have snapped up calls over puts at a rapid pace during the past couple of weeks. This ratio ranks higher than 89% of other such readings taken during the previous 52 weeks, indicating that calls have rarely been in greater demand.
In keeping with this trend, DPS' Schaeffer's put/call open interest ratio (SOIR) is also lingering in optimistic territory. The stock's SOIR currently weighs in at 0.68, which ranks in the 30th annual percentile. This low rank reveals that short-term speculators have shown a greater preference for calls over puts only 30% of the time during the past year.
Not only are option players veering toward bullish bets, they're also favoring out-of-the-money strikes. The November 30 strike is home to peak front-month call open interest of 4,865 contracts, and the December 30 strike carries peak call open interest of 3,288. In fact, the 30 strike also holds sway in the February series, with a total of 20,278 calls in residence.
Meanwhile, the equity's put players prefer the 25 strike. The November 25 strike sports peak put open interest of 4,132 contracts, and the December 25 strike is home to peak put open interest of 1,237 contracts. With DPS trading just shy of $27 at last check, both call and put traders are showing a marked interest in the stock's out-of-the-money options.
Elsewhere on Wall Street, short sellers are ramping up their bets on the security's decline. Short interest on DPS rose by 19.4% during the past month, and escalated by nearly 12% during just the most recent reporting period. Now, these bearish bets account for a notable 4.7% of the equity's float.
Against this backdrop, the recent rush toward calls over puts takes on new meaning. Rather than representing new bullish positions, the flood of purchased calls could simply be the result of increased hedging activity by the short-selling crowd.
From a technical perspective, DPS is in the midst of a pullback from its brief surge above the $30 level on Oct. 9. The equity boasts a respectable 2009 gain of about 70%, but the shares have now underperformed the broader S&P 500 Index (SPX) by roughly five percentage points during the past 20 sessions.
Thanks to its bout of technical weakness, DPS recently breached support from its 10-day, 20-day, 50-day, and 80-day moving averages. Previously, these trendlines collaborated to send the shares higher from late March through mid-October. DPS settled Tuesday atop its 10-day and 80-day moving averages -- but the stock is down 2% today, and it's currently struggling to keep a foothold above the latter.
However, the shares are still holding steady atop support from their 20-week moving average, even though their 10-week trendline is threatening to switch roles and act as resistance. DPS is also hovering above newfound support at the $26 level, which previously acted as a technical ceiling.
So, in light of this technical setup, it looks as though short sellers are buying long calls in order to guard against a potential rebound from double-barreled support in the $26 neighborhood. While DPS has exhibited weak price action during the past month, the equity won't truly be in trouble unless it breaches this critical region.
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