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Bulls Pile On as Weatherford International plc (WFT) Rallies

Weatherford International plc call volume has soared to 21 times the intraday average

by 8/27/2014 2:35 PM
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Weatherford International plc (NYSE:WFT) has jumped 3.5% today to trade at $23.73, after Mario Gabelli -- CEO of Gamco Investors Inc (NYSE:GBL) -- named the stock a "Top Pick." Option traders are responding in kind, sending call volume to 21 times what's typically seen at this point in the day. Short-term contracts are in heavy rotation, per the equity's 30-day at-the-money implied volatility (IV), which has surged 28.3% to 30.4%.

Most active are WFT's October 26 and 27 calls, where a collective 32,178 contracts have traded. A healthy portion of activity at each strike has occurred on the ask side, IV is trending higher, and volume easily outstrips open interest, making it safe to assume new positions are being purchased. Plus, data from the International Securities Exchange (ISE) confirms some of the day's action is of the buy-to-open kind.

Looking at the charts reveals that WFT has not traded north of either strike since September 2008. Heading into today's session, delta for the lower-strike call was docked at 0.11 and 0.068 for the higher-strike call. Given today's pop, these readings have surged to 0.27 and 0.19, respectively, signaling an increased probability the calls will be in the money at expiration on Friday, Oct. 17.

Widening the sentiment scope shows today's accelerated call volume diverges from the withstanding trend witnessed in WFT's options pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.70 ranks in the bearishly skewed 79th percentile of its annual range. Considering Weatherford International plc (NYSE:WFT) has tacked on an impressive 53.2% in 2014, a portion of this recent put buying could be at the hands of shareholders hedging against an unexpected decline.


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