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DryShips Inc. (DRYS) Option Traders Eye Extended Gains

DRYS' September 2.50 calls are seeing buy-to-open activity today

by 6/25/2013 2:55 PM
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Bulls have been targeting DryShips Inc. (NASDAQ:DRYS) for some time now, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 50 sessions, traders at these exchanges have bought to open 43,304 calls on DRYS, compared to 1,495 puts. In fact, the resultant call/put volume ratio of 28.97 ranks in the 90th percentile of its annual range, meaning calls have been accumulated over puts with more rapidity just 10% of the time within the past year.

As such, the stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.24. Not only does this mean that call open interest more than quadruples put open interest in the front three-months' series of options, but it ranks lower than all other annual readings. Simply stated, short-term speculators are more call-heavy now than at any other time within the past year.

Given that DryShips has tacked on 4.2% today, this bullishly skewed bias is continuing in this session. By the numbers, more than 2,200 calls have been exchanged, versus fewer than 250 puts. Roughly one-quarter of today's volume has centered at the September 2.50 call. All of the contracts traded at this deep out-of-the-money strike have done so on the ask side, and implied volatility has ticked higher, indicating the initiation of new bullish positions.

In order for the calls to be profitable, DRYS must move north of $2.56 (strike plus the volume-weighted average price of $0.06) by the close on Sept. 20. This breakeven level resides 46% above the equity's current price of $1.75, as well as in territory not charted on an intraday basis since Sept. 24. A move of this magnitude isn't out of the question, considering the equity's 3-month historical (realized) volatility sits at 47.5%.

Thanks to today's positive price action, DryShips Inc. (NASDAQ:DRYS) is up 9.4% year-to-date. All the bullish sentiment surrounding a stock that's added such a modest amount in 2013 may seem puzzling. However, at present levels, DRYS creates a limited profit opportunity for put players.


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