In last week's edition of Trading Tools, I examined the prospects for medical technology firm Stryker Corporation (SYK), as it appeared on the Zacks Unusually High Option Volume filter. However, utilizing the Zacks Put/Call Ratio Greater than 1.0 screener today, I stumbled upon another equity that caught my eye: Bermuda-based shipping concern TBS International Limited (TBSI: sentiment, chart, options).
Before we begin, let's explain the contrarian stance that makes Schaeffer's so unique. When searching for a bullish pick, we like to see heavy skepticism toward an outperforming stock, as this leaves ample room for upgrades or other positive catalysts to fuel the stock higher. When searching for a bearish pick, on the other hand, contrarians are looking for significant bullish sentiment toward an underperforming stock, as we believe an excess of optimism is a sign that everyone has already bought into the stock and sideline money is virtually tapped out.
Nevertheless, keep in mind that some optimism and pessimism is genuinely warranted and isn't always a contrarian indicator – like an outperforming stock with many "buy" ratings or an underperforming stock with a plethora of "sell" ratings. For more on the Schaeffer's Expectational Analysis ®, click here.
The Put/Call Ratio Greater than 1.0 Screener
First, an explanation of our stock screener. The filter looks for stocks with a high put/call open interest ratio, indicating a preference for bearish bets among near-term options. Why is this important? Simply put, a high Schaeffer's put/call open interest ratio (SOIR) – measuring options with less than 3 months until expiration – suggests that expectations for the security to rally are extremely low. In other words, a high ratio usually indicates skepticism among short-term options speculators.
Bearish Bets Sail Higher
According to the Zacks filter, TBSI's SOIR has skyrocketed recently, indicating escalating pessimism among options traders. The ratio now rests at 1.78, a mere 2 percentage points from an annual bearish peak.
Further underscoring the recent affinity for puts is the latest data from the International Securities Exchange (ISE). During the past 10 days on the ISE, the security has seen more puts than calls bought to open. What's more, the ratio of 1.06 registers in the 98th percentile when compared to similar readings during the past year, suggesting that options traders have scooped up puts at a faster pace only 2% of the time during the previous 52 weeks.
Now, only 1 question remains: is the swelling of skepticism warranted?
Checking Out the Charts
Since grazing the round-number 60-level in mid-2008, the shares of TBSI plunged roughly 93% beneath resistance from their 10-week moving average. However, after rebounding off the 4 level in early December, the equity has displayed some technical muscle, outperforming the S&P 500 Index (SPX) by an impressive 239% during the past 20 trading sessions. What's more, the stock is now poised to close its fourth consecutive week atop the aforementioned trendline.
However, the security's voyage into the black could face a potential roadblock in the form of its 20-week moving average, currently idling in the 13 neighborhood. At last check, TBSI was flirting with the 11.35 level, a gain of more than 13% from Wednesday's close.
The Bottom Line
Technically speaking, TBSI traders will want to keep an eye on the stock's 10-week and 20-week moving averages. The former of these trendlines, once a form of resistance, could now switch roles and act as support. The latter, on the other hand, has yet to be confronted, and could smack the shares of TBSI lower.
However, if the stock can manage to barrel through potential resistance, the skeptics in the options arena could get spooked. An unwinding of pessimism in the options pits could further fuel the shipping sultan's recent gains.
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