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Pessimism Abounds on Outperforming BB&T

Options players favor puts on BBT ahead of earnings

by 4/16/2012 1:30:50 PM
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Put volume has been on the rise toward BB&T Corporation (BBT - 30.63), as indicated by the stock's Schaeffer's put/call open interest ratio (SOIR). Since April 2, BBT's SOIR has jumped to 1.42 from 1.06, as near-term put open interest has increased roughly 12%. This ratio currently ranks in the 98th percentile of its annual range, suggesting that short-term speculators have rarely been more put-heavy toward the security.

Echoing this bearish bias is data gathered from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 10 trading sessions, investors have bought to open 3.60 puts for every call. Plus, this ratio also arrives in the 98th annual percentile, implying that bearish bets have been scooped up over bullish ones at a near annual-high clip in recent weeks.

The pessimistic skew is not strictly relegated to the options pits, as members of the brokerage bunch have soured on the North Carolina-based financial firm. No less than 20 out of 28 analysts maintain a "hold" or worse recommendation toward the stock. Also, the average 12-month price target of $32.40 represents a narrow 6% premium to Friday's closing price of $30.65.

The skepticism surrounding the stock is puzzling, given its strong technical showing. BBT has added a respectable 21% on a year-to-date basis, and the stock is currently catching a lift higher from its 40-day moving average. This supportive trendline has contained all of the equity's pullbacks this year. This includes the security's most recent consolidation, after BBT touched a nearly two-year high of $31.94 on March 28.

Daily Chart of BBT since December 2011 with 40-Day Moving Average

From a contrarian perspective, the stock could be in a position to enjoy some tailwinds in the short term, as such extreme levels of bearish sentiment surrounding an outperforming equity have bullish implications. Plus, BBT is scheduled to take its turn in the earnings confessional ahead of Thursday's bell. The banking concern has beaten bottom-line expectations in each of the past four quarters, so another positive report could provide the stock with some positive post-earnings momentum.


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