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Shutterfly's Bid for Kodak's Online Arm Pleases the Street

Shares of SFLY tack on a double-digit percent gain in today's session

by 3/2/2012 2:45:59 PM
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Shares of Shutterfly, Inc. (SFLY - 31.83) are soaring in today's session. The surge comes after last night's announcement that the California-based photo concern placed a $23.8-million bid for Eastman Kodak's online photo division, as the latter reorganizes its assets under Chapter 11 bankruptcy protection. The decision will be finalized in a court-supervised auction, after other companies are given the opportunity to place their respective offers.

At last check, the stock has added more than 19%, building on its healthy 18% year-to-date gain. In fact, today's potential-acquisition pop positions the stock to finish north of both its 10-week and 20-week moving averages -- a feat not accomplished on a weekly closing basis since mid-September.

Price Chart of SFLY

SFLY's rally has fueled heavy options activity in today's session, with calls and puts trading at accelerated levels. Calls have emerged as the options of choice, however, with roughly 7,500 contracts crossing the tape -- representing 17 times their average intraday volume. By comparison, around 5,000 puts have changed hands, or eight times their average intraday pace.

Today's increased call volume suggests a change of direction for options players, as evidenced by SFLY's Schaeffer's put/call open interest ratio (SOIR) of 0.93, which ranks in the 84th percentile of its annual range -- indicating that near-term traders are more put-heavy than usual toward the stock. Also, during the past 20 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.34 puts for every call.

This bearish bias has spilled over outside of the options arena, where short interest accounts for a lofty 17.6% of the stock's available float. It would take almost four days to cover these shorted shares, at SFLY's average daily trading volume.

What's more, Thomson Reuters pegs the consensus 12-month price target at $31.44 -- representing a discount to the stock's intraday high of $32.50.

From a contrarian perspective, the equity could encounter some analyst-related tailwinds in the near future, as any price-target hikes in light of SFLY's positive price direction could encourage today's bullish trend to continue.

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