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Call Players Buy the Dip on General Dynamics Corporation

The defense issue is attracting a flood of attention from bullish bettors

by 5/4/2010 12:45:42 PM
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Option volume has skyrocketed today on General Dynamics Corporation (GD), with traders paying particular attention to the defense firm's call options. Approximately 3,300 calls have changed hands so far on GD, easily outpacing the equity's expected daily call volume of about 290 contracts. Meanwhile, only about 300 put contracts have traded on the shares so far.

GD OI configMost active is GD's May 80 call, where 2,249 contracts changed hands in the first two hours of the session. Roughly 72% of these calls traded at the ask price, suggesting they were purchased, and implied volatility on this front-month option has surged about 8% as a result. This strike is currently home to peak call open interest of 5,056 contracts, but it looks as though still more contracts are being added here today.

However, today's bias toward calls over puts isn't exactly a shocking development for GD. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open nearly six calls for every put on the equity. This ratio ranks higher than 86% of other such readings taken during the previous year, suggesting that speculators have purchased calls at a faster clip only 14% of the time.

Likewise, GD's Schaeffer's put/call open interest ratio (SOIR) of 0.66 indicates that calls easily outnumber puts among options set to expire within three months. This SOIR ranks in the 24th annual percentile, indicating that short-term options traders have been more bullishly aligned less than one-quarter of the time during the previous 12 months.

Elsewhere, short sellers have largely abandoned their bearish bets on GD. The number of shares sold short slipped by 6.3% during the most recent reporting period, and short interest now accounts for just 0.9% of the stock's float.

Analysts are also fans of GD, with Zacks reporting 14 "strong buy" ratings, compared to just seven "holds" and one "sell." Overall, it seems as though Wall Street is nearly unanimous in its upbeat opinion of the defense company.

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