Pessimistic options players have pounced on insurance issue Lincoln National Corporation (LNC: sentiment, chart, options) recently. The security saw roughly 12,000 puts change hands yesterday, more than quintupling its average daily volume of fewer than 2,300 contracts. What's more, the bearish betting has continued today. In afternoon trading, LNC has already seen a whopping 6,000 puts cross the tape – more than 4 times the normal intraday volume.
The surge in put volume is likely attributable to a couple of different factors. First, the company stepped into the earnings confessional after the close yesterday, reporting a steep loss of 48 cents per share (excluding items) in the fourth quarter. Revenue fell 12% to $2.27 billion, as life insurance profit tumbled 51%. The figures fell short of the Street's expectations; analysts, on average, predicted a profit of 10 cents per share on $2.56 billion in sales.
Second, options players could be responding to a bout of bearish brokerage news. Moody's today put Lincoln's financial strength ratings under review for possible downgrade. The ratings agency said its review will focus on how much the company's earnings capacity and capitalization could be hurt by additional investment losses. Moody's will also analyze Lincoln's ability to meet its obligations for $500 million in senior debt coming due in April, according to Thomson Reuters.
In afternoon trading, the shares of LNC have plunged along with the broad market. The stock is now flirting with a loss of 3 points, or 16.7%, hovering just above support in the 14 region. Pressuring the security lower is double-barreled resistance at its 10-week and 20-week moving averages, which have guided LNC into the red since mid-2008.
The aforementioned options players are likely cheering the equity's hefty decline, as the most popular contract during the past couple of days was the February 17.50 put. Just yesterday, this bearish bet saw more than 6,000 contracts cross the tape; today, it's already seen about 2,700 contracts change hands. This strike – now in the money – is currently home to peak put open interest in the front-month series, with about 7,600 contracts in residence.
However, not everyone has boarded the bearish bandwagon just yet. According to Zacks, LNC currently harbors 6 "buy" or better ratings, compared to 6 "holds" and no "sell" or worse ratings. In addition, the average 12-month price target on the equity rests at $30.14, Thomson Reuters reports. In order to attain this generous goal, the shares would need to more than double from their current trading range.
In conclusion, the skeptical options speculators' party could continue, should additional analysts follow in Moody's footsteps. A wave of downgrades and/or price-target cuts could further exacerbate LNC's recent losses.
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