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Arris Group Sees Rare Spike in Put Buying

ARRS has seen an early run on intermediate-term puts

by 12/20/2012 10:31 AM
Stocks quoted in this article:

Option players are showing a relatively rare affinity for Arris Group, Inc. (NASDAQ:ARRS - 15.55) puts this morning, despite the stock's jump into new-high territory. Against the equity's technical backdrop, though, today's appetite for seemingly bearish bets could be shareholders protecting their long stock positions in the event of a pullback.

Within the first hour of trading, the communications concern has already seen roughly 1,000 puts cross the tape -- about 250 times its average intraday put volume, and more than three times the number of ARRS calls exchanged. Most active is the February 15 put, which has seen 700 contracts change hands on open interest of fewer than 150 contracts, hinting at fresh initiations. Plus, the majority of the puts have traded at the ask price, suggesting they were bought.

By purchasing the puts to open, the buyers have one of two motives: to profit from an intermediate-term descent on the charts, or to protect their shares of ARRS. In the case of the former, the buyers will make money if ARRS falls back beneath the $14.50 level (strike minus volume-weighted average price of $0.50) by February options expiration. In the case of the latter, the traders are shareholders above all else; the purchase of the puts simply guarantees a sale price of $15 per share, should ARRS take a tumble within the next few months.

As mentioned earlier, today's preference for ARRS puts runs counter to the trend. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day call/put volume ratio of 7.91, indicating that speculators have purchased nearly eight calls for every put during the past couple of weeks.

In the same vein, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.23 indicates that calls more than quadruple puts among options with a shelf-life of three months or less. Furthermore, this ratio ranks in the 21st percentile of its annual range, suggesting near-term options players are more call-heavy than usual right now.

At last check, the shares of ARRS are up 7.1% to wink at the $15.55 area. Right out of the gate, the stock gapped as high as $15.90 -- in territory not charted since July 2007 -- after agreeing to acquire Motorola's set-top box business from Google (NASDAQ:GOOG) for about $2.35 billion in cash and stock.


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