Avis Budget Group Inc. (CAR) is en route to the earnings confessional, with the car rental concern slated to report its first-quarter figures after the closing bell on Monday. According to Thomson Reuters, the firm has bested the Street's per-share profit predictions in each of the past four quarters. However, judging by the growing affinity for CAR puts, it appears the options crowd is rather wary ahead of the event.
During the past couple of weeks, speculators on the International Securities Exchange (ISE) have initiated almost four bearish bets for every bullish, as indicated by CAR's 10-day put/call volume ratio of 3.80. What's more, this ratio stands higher than 86% of all others taken during the past year, implying that traders on the ISE have bought to open CAR puts over calls at a faster clip only 14% of the time.
In fact, the accelerated put activity of late is further reflected in the security's Schaeffer's put/call open interest ratio (SOIR), which measures options with less than three months to expiration.
After climbing higher during the past few weeks, the stock's SOIR now stands at a 52-week peak of 1.10. In other words, short-term options players haven't been more bearishly biased toward CAR at any other time during the past year.
Underscoring the mounting preference for puts, CAR on Thursday saw single-session put volume soar to more than seven times the norm. More specifically, the equity saw roughly 7,200 puts change hands, compared to its predicted daily volume of fewer than 1,500 puts.
Meanwhile, the options crowd isn't the only group skeptically skewed toward CAR. Short interest on the security has powered steadily higher during the past few months, advancing more than 10% during the most recent reporting period. These pessimistic positions now represent about 17.8 million CAR shares, or 17.6% of the stock's total available float. In fact, at the equity's average trading pace, it would take nearly a week for all of these bearish bets to unwind.
However the pessimism plaguing CAR is somewhat perplexing, from a technical standpoint. The shares have skyrocketed more than 650% during the past 52 weeks, outpacing the S&P 500 Index (SPX) by an impressive 34.5% during the past 40 sessions. What's more, the security is poised to close the month atop long-term resistance in the $14 neighborhood, as well as its 50-month moving average. This trendline acted as a technical ceiling from late 2005 into mid-2007, and could now switch roles to play the part of support.
Nevertheless, the bearish bias toward the outperformer could actually be a boon for CAR, from a contrarian perspective. Should the firm confess to another solid quarter next week, the pessimistic holdouts could hit the exits. A reversal in sentiment in the options arena or a short-covering spree could help CAR pave a path even higher.
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