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Call Players Place Their Bets on Arch Coal Inc (ACI)

Are short sellers behind the recent increase in ACI call volume?

by 5/14/2013 1:56 PM
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Call options have emerged as a popular choice on Arch Coal Inc (NYSE:ACI), according to volume data from the major exchanges. Over the past five days, speculative players on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 1,939 calls on ACI, easily outpacing the 294 puts purchased during this period.

From a broader perspective, ACI sports a 10-day call/put volume ratio of 4.96, based on buy-to-open statistics from the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). In other words, traders have scooped up nearly five times more bullish bets than bearish over the past couple of weeks. This ratio arrives in the 70th percentile of its annual range, indicating a stronger-than-usual preference for calls over puts on Arch Coal.

This trend toward bullishly oriented options is surprising, since ACI is down about 31% year-to-date. The stock is currently trading at $5.05, just below resistance at its 10-week moving average. ACI hasn't managed a single Friday finish above this descending trendline since Jan. 25.

However, the shares have regained some ground since bottoming at $4.47 in mid-April, which seems to have prompted a handful of short sellers to call it a day. Short interest on ACI fell by 10.1% during the most recent reporting period -- yet 14.6% of the stock's float is still sold short.

In fact, some of these shorts may have been responsible for the recent rise in ACI call activity. By purchasing call options on the stock, anxious bears can maintain their exposure to additional downside, while simultaneously limiting their upside risk in the event of a continued rebound.


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