Warner Chilcott Plc (WCRX: sentiment, chart, options) has become a favorite target of put players. During the past 10 days, speculators on the International Securities Exchange (ISE) have bought to open 2.90 puts for every call on WCRX. In other words, bearish bets have nearly tripled their bullish counterparts during the past two weeks. This reading ranks in the 100th annual percentile, revealing that traders are purchasing puts over calls at a more rapid pace than any other time during the past year.
In fact, on Thursday alone, ISE option players bought to open 1,970 puts on WCRX, compared to just 47 calls. The stock's single-day put/call volume ratio of 41.91 reveals that puts were even more popular than usual during the course of Thursday's trading, when WCRX priced a secondary equity offering of 20 million shares at $22.25 each.
In keeping with this downbeat theme, WCRX's Schaeffer's put/call open interest ratio (SOIR) arrived today at its highest level in months. The stock's SOIR now weighs in at 0.84, in the 79th annual percentile. This elevated reading suggests that short-term speculators have been more pessimistically aligned only 21% of the time during the past year.
In the front-month series, which is due to expire at the end of the session, traders are favoring the November 25 put. This strike is home to 2,200 options, all of which are in the money. This skew toward an overhead put strike indicates that front-month bears have played it relatively safe; the stock's annual high currently stands at $24.45, so this option was a fairly conservative place to make a bearish bet.
Put open interest is thin in the December series, but January 2010 put players seem to have very low expectations for WCRX. Peak put open interest for this back-month series rests at the 17.50 strike, which is out of the money by a substantial margin. Currently, there are 7,069 open put positions at this strike.
Elsewhere on Wall Street, short sellers have made their presence known. The number of WCRX shares sold short spiked by 48.9% during the past month, and now accounts for 5.7% of the equity's available float.
In other words, stock and option traders alike appear to be growing steadily more skeptical of WCRX's prospects. The downbeat mood among investors stands in stark contrast to the sunny consensus among analysts; Zacks reports that the stock has scored six "strong buys," compared to just one "hold" and one "strong sell."
After assessing the equity's price action, it seems that the bulls have more evidence to support their case than the bears. WCRX has rallied nearly 60% year-to-date, and it's up about 95% during the past 52 weeks. In fact, during the past 20-day, 40-day, and 60-day time periods, the stock has consistently outperformed the broader S&P 500 Index (SPX).
WCRX's momentum has slowed a bit in recent weeks, but the stock was probably just waiting for support from its 10-week moving average to catch up with its progress. The shares haven't finished a single week below this trendline since early May, and it should continue to provide a technical boost.
From a longer-term perspective, the round-number $20 region could serve as a secondary backstop if needed. This area capped WCRX's progress for much of 2007, but the stock made a decisive surge above this barrier back in August. Since then, the $20 level appears to have switched roles to act as support.
Overall, the pervasive bearish sentiment on Wall Street is encouraging, from a contrarian standpoint. Taken in the context of WCRX's solid technical performance, the widespread skepticism reveals that there are still plenty of investors who haven't bought into the stock's uptrend. As the shares continue to benefit from reliable trendline support, an unwinding of negative sentiment should translate to additional gains.
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