Bullish options bettors have bombarded Ambac Financial Group, Inc. (ABK: sentiment, chart, options) recently, with the stock yesterday logging a single-day call/put ratio of nearly 152 on the International Securities Exchange (ISE) and Chicago Board Option Exchange (CBOE). In other words, ABK saw virtually 152 calls bought to open for every put on the ISE and CBOE yesterday.
However, after further research, it seems that yesterday's preference for ABK calls was merely an extension of the recent bullish trend in the options pits. During the past 10 days on the ISE, the security has seen roughly 47 times as many calls than puts bought to open. What's more, this reading ranks in the 98th annual percentile, suggesting that the optimism among options players has been more palpable only 2% of the time during the past 52 weeks.
Further demonstrating the high hopes in the options arena is ABK's Schaeffer's put/call open interest ratio, which has inched lower during recent weeks. The equity's SOIR is currently docked at 0.76, indicating that calls outnumber their put counterparts among options slated to expire within 3 months.
Taking a look at the security's technical performance of late, it's difficult to comprehend the optimism among options speculators. During the past 60 trading sessions, the shares of ABK have underperformed the S&P 500 Index (SPX) by about 70%. What's more, since breaching long-term support from its 10-month trendline in July 2007, the equity has backpedaled roughly 98%. With ABK now hovering near the 1.60 level, the aforementioned trendline has assumed the role of resistance, and could hinder any rally attempts out of the shares.
Meanwhile, after falling more than 9.5% in after-hours trading yesterday, the stock has recouped some of those losses to hover around breakeven at $1.56. Currently, investors are attempting to digest the latest news from Ambac's board, with the group last night voting to eliminate the company's regular quarterly dividend in an effort to preserve liquidity. The move is expected to save the bond insurer about $11.5 million annually.
Nevertheless, regardless of the company's attempts to weather the credit crisis, the escalating optimism among options traders is somewhat alarming (though I suppose one could argue that a stock trading as low as ABK has little downside risk). Should the shares of ABK continue their quest for new lows, the lingering bulls could chuck their proverbial rose-colored glasses. A reversal in sentiment in the options pits could spark a fresh wave of selling pressure on the struggling security.
Enjoy Sentiment Snapshot? Now, you can get it sent directly to your inbox. Simply click here to sign in, select "author" from the first box, determine how often you'd like to be alerted, and enter "Andrea Kramer" into the third box. Easy as 1, 2, 3!
Discuss this article:
Post your own comment
More articles:
Due to the diversity available to options traders, investors have many paths toward achieving a profit. For a bearish trader, the simplest path is to buy (to open) a put contract. By doing so, the trader is placing a bet that the underlying stock will trade significantly below the option's strike price by that contract's expiration date. This strategy is pretty straightforward, but it fails to take into account the potential complexities involved in positioning your portfolio to profit from stocks that are not in a clearly defined downtrend. What's more, due to the size of the drop needed in the underlying security, an outright put purchase often rules out stocks that have additional downside potential, but which could stall near technical support levels. read more...
McDonald's Corp (MCD: sentiment, chart, options) is in the news this morning as the company announced a 2.6% increase in January sales at restaurants open at least 13 months. Same-store sales in the closely watched U.S. region fell 0.7%, while those in Europe and in the Asia/Pacific, Middle East and Africa region both rose 4.3%. read more...
Bristol-Myers Squibb (BMY) read more...
Option traders are betting on a continued slump for casino concern Bally Technologies Inc. (BYI: sentiment, chart, options) , despite an upbeat analyst endorsement over the weekend. read more...
Aetna Inc. (AET) read more...
Research In Motion Limited (RIMM: sentiment, chart, options) has attracted an unusual amount of attention from option traders today – especially on the put side of the tape. In early afternoon activity, the BlackBerry maker has seen roughly 17,000 puts change hands, already surpassing the stock's expected single-session volume of about 15,000 puts. read more...
Earnings season is upon us, and investors all across Wall Street are hoping to take advantage of these potentially volatile few weeks. Large bull (and bear) gaps, upgrades and downgrades, and short squeezes all become increasingly more likely during this period, as companies meet, beat, or miss quarterly expectations. As such, it is imperative that traders be well equipped to deal with all of the eventualities. read more...
NRG Energy (NRG) read more...
Bullish call spreads are known by a variety of different names among options traders. But whether the position is a bull call spread, bullish debit spread, or a long vertical call spread, it is still constructed by purchasing an at-the-money or in-the-money call while simultaneously selling an out-of-the-money call. The reasoning behind pairing up these seemingly contradictory options is really quite simple: limited risk. read more...
McDonald's Corp. (MCD) read more...
Today's Most Popular Stories
working... 
