Optimistic Speculation Surges on Washington Federal Inc.

Option volume was unusually heavy last Friday on Washington Federal Inc. (WFSL), with activity skyrocketing to 24 times the norm. Speculators on the International Securities Exchange (ISE) revealed a bullish bias by snapping up 3,627 calls on the security, compared to just 688 puts. In other words, traders bought to open 5.27 times more calls than puts during the course of the day.

No news in particular seems to have sparked the optimistic onslaught, but WFSL has recently climbed to a string of new 52-week peaks on the charts. The stock has now racked up a year-to-date gain of more than 26%, with support from its 10-day and 50-day moving averages highlighting the most recent leg of its uptrend.

In response to the equity's gains, option traders have shown an increasing preference for bullish options over their bearish counterparts. WFSL's 10-day ISE call/put volume ratio now stands at 4.84, which ranks higher than 92.4% of other such readings taken during the past year. In short, calls have rarely been purchased over puts at a faster pace.

In the newly front-month December series, peak call open interest consists of 1,385 contracts at the 20 strike. This out-of-the-money call also holds sway in the January 2010 series, with 7,030 contracts outstanding. If traders continue to accumulate calls at this overhead strike, it could potentially act as a "speed bump" on the stock's road higher.

However, a continued unraveling of short interest could help to offset this potential headwind. As WFSL extended its trek higher during the past month, the number of shares sold short tumbled by 7.4%. With a respectable 5.4% of the stock's float still dedicated to short interest, WFSL could continue to benefit from this supply of sideline cash.

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