In last week's edition of Trading Tools, we examined defense issue Raytheon Company (RTN), as it appeared on the Zacks Unusually High Option Volume stock screener. Utilizing the same filter today, a different equity piqued my interest: German car king Daimler AG (DAI: sentiment, chart, options).
For an explanation of the contrarian stance that makes Schaeffer's so unique, check out a recent version of Trading Tools.
According to Zacks, Daimler was the focus of an outpouring of optimism in the options pits on Wednesday. The security saw roughly 62,500 calls cross the tape – 18.5 times its average single-day volume of fewer than 3,400 bullish bets.
However, calls aren't really near-term options traders' cup of tea; the equity's Schaeffer's put/call open interest ratio (SOIR) currently stands at 1.51, indicating that puts outnumber their bullish rivals among options slated to expire within 3 months. Furthermore, compared to similar readings taken during the past year, Daimler's SOIR ranks in the 94th percentile. In other words, short-term options speculators have actually been more skeptically skewed toward DAI only 6% of the time during the past 12 months.
So, why are options players suddenly revving their engines toward the bullpen?
One potential catalyst could've been an optimistic analyst note. Goldman Sachs yesterday upgraded Daimler to "buy" from "neutral," predicting the shares could catch up with their sector peers soon, as "bad" news has already been discounted and market expectations remain low. As a result, the shares of DAI skyrocketed 7.5% higher yesterday, making them the sharpest gainers among German large-cap stocks.
Technically speaking, the past couple of years have been a bumpy ride for the auto industry, with DAI being no exception. The stock has surrendered about 70% since flirting with the 110 level in late 2007, but eventually found a foothold in the 25 neighborhood, which has acted as support since October 2008. On the bright side, the equity recently jumped a potentially significant technical hurdle, closing last week atop its 10-week and 20-week moving averages for the first time since November 2007. However, the shares of DAI could face an additional layer of resistance in the 35-to-40 neighborhood, which hasn't been breached on a weekly closing basis in more than 6 months.
Turning back to the sentiment surrounding the automaker, the "low expectations" cited by Goldman Sachs are evident when looking at DAI's analyst ratings. The stock currently harbors only 1 "buy" or better rating, Zacks reports, compared to 5 "hold" or worse ratings. On that same note, Thomson Reuters pegs the average 12-month price target on the equity at only $24.84 – representing a discount of about 24% to the stock's intraday high of 32.78 today.
Nevertheless, this widespread bearish bias among the brokerage bunch could actually be a boon to the stock going forward. Should German car sales extend their recent run higher – the country's auto purchases were bolstered 40% on the year in March – or should the shares of DAI power past resistance, the skeptics on the Street could get spooked. An unwinding of pessimism in the options pits, or a fresh wave of upgrades and/or price-target boosts, could place additional buying pressure on the motorcar mogul.
To sign up today for a free subscription to "Bernie Schaeffer's SENTIMENT, smart options for today's investor," a new quarterly magazine devoted to the subject of options trading, click here. Sentiment's inaugural edition includes a cover story by Bernie -- "Are We There Yet?" -- that arms readers with some new tools for gauging a market bottom. Each issue of SENTIMENT is jam- packed with critical resources and information to help you trade in today's volatile market.
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