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Bulls are keeping a close eye on DryShips Inc. (NASDAQ:DRYS), which has spiked nearly 40% year-to-date and outperformed the broader S&P 500 Index (SPX) by 16.2 percentage points during the past four weeks. In fact, DRYS' International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 50-day call/put volume ratio of 40.32 ranks just 1 percentage point below its 52-week peak, meaning speculators have rarely been more call hungry during the last year, buying to open more than 40 calls for every put.
In yesterday's options pit for DRYS, roughly 11,000 calls -- almost three times the daily norm and nearly 6.5 times the number of puts -- were exchanged. Of these calls, 3,172 were traded at the June 2.50 strike for a volume-weighted average price (VWAP) of $0.11. Because 70% of the contracts went off at the ask price, and open interest added 2,432 positions overnight, we can assume heavy buy-to-open activity.
Yesterday's call buyers expect DRYS -- currently docked at $2.26, just 4 cents below analysts' consensus 12-month price target of $2.30 -- to hustle north at least 15.5% to finish above the breakeven price of $2.61 (strike price plus VWAP) by the close on June 21, when front-month options expire. If the shares stagnate, however, the most the call buyers risk losing is the initial premium paid.
DryShips Inc. (NASDAQ:DRYS) is scheduled to enter the earnings confessional tomorrow, after the market's close. Analysts, on average, expect the ocean transportation service to report a first-quarter loss of 10 cents per share, a 2-cent decrease from a year ago.
DRYS has fallen short of analysts' expectations in six out of the past seven quarters, and has, on average, dropped considerably during the following week. More specifically, the company has plunged by an average of 2.2% the day after earnings, and 4.4% after one week.