Options traders are planting the seeds of optimism on Deere & Company (DE: sentiment, chart, options), as the farm-equipment firm prepares to step into the earnings confessional. According to Thomson Reuters, the company is expected to report fiscal second-quarter figures before the market opens on Wednesday.
In early afternoon trading, DE has already seen roughly 6,800 calls cross the tape, more than 2.5 times its average intraday volume of about 2,600 contracts. Most popular has been the security's June 41 call, which has seen nearly 1,900 contracts change hands on open interest of fewer than 1,000, suggesting the bulk of today's activity should translate into new positions.
Meanwhile, the equity's June 43, 44, and 45 calls have each seen more than 1,000 contracts cross the tape so far today. However, peak call open interest in the newly front-month series rests at the in-the-money 40 strike, home to almost 9,700 contracts.
Today's bullish build-up implies that options traders may be taking the road less traveled. During the past couple of weeks, speculators on the International Securities Exchange (ISE) have bought to open more than eight times as many puts than calls on DE. In fact, the stock's 10-day put/call volume ratio of 8.43 stands only one percentage point shy of an annual pessimistic peak.
The bearish bias in the options pits is further reflected by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.05, which indicates that puts outnumber their call counterparts among options slated to expire within three months. Compared to similar readings taken during the past year, DE's SOIR ranks in the 91st percentile. In other words, short-term speculators have been more skeptically skewed toward DE only 9% of the time during the past 52 weeks.
On that same note, the analyst community has also boarded DE's bearish bandwagon. According to Zacks, only five out of 14 ranking analysts deem the stock worthy of a "buy" rating. Plus, Thomson Reuters pegs the average 12-month price target on the equity at only $42.92, representing a slight discount to the security's intraday high of $44.40 tagged earlier today.
Technically speaking, since grazing the 25 level in early March, the shares of DE have muscled about 77% higher. Supported by its 10-day and 20-day moving averages, the stock has outdistanced the S&P 500 Index (SPX) by an impressive 27% during the past 60 trading sessions. At last check, the security was flirting with the 44.25 level, a gain of about 2.3 points, or 5.5%, from Friday's close.
From a more historical perspective, DE is now poised to close the month atop its 10-month moving average for the first time in more than a year. Providing another potential layer of support on the charts could be the heavy accumulation of bearish bets at the round-number 40 strike. In the June series of options, the 40 strike is home to peak put open interest, with more than 10,800 contracts in residence.
In conclusion, should Deere's quarterly figures exceed the Street's expectations, the bears could abandon ship. An unwinding of pessimism in the options pits, or a fresh wave of upgrades and/or price-target boosts, could help fuel the shares of DE even higher on the charts.
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