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Shipping concern DryShips Inc. (NASDAQ:DRYS - 2.03) lost ground on Thursday, and the negative price action wasn't lost on option traders. More than 3,900 puts changed hands throughout the session, or nearly seven times the average daily put volume. As a point of comparison, fewer than 1,800 calls crossed the tape.
Bears turned their attention to DRYS' back-month series of options, and scooped up the April 1.50 and 2 puts. Nearly all of the collective 1,823 contracts traded at these strikes crossed at the ask price, implied volatility ticked higher, and open interest rose overnight, indicating buy-to-open activity.
The out-of-the-money April 1.50 puts were purchased for a volume-weighted average price (VWAP) of $0.07, making breakeven $1.43 (strike less VWAP), or 29.6% below present levels. In other words, traders will begin to profit with each step south of $1.43 DRYS takes through the close on Friday, April 19 -- when the options expire. At last night's close, delta for these puts was sitting at negative 0.15, meaning the options market is giving the options a slim 15% chance of finishing in the money at expiration.
Meanwhile, breakeven for the April 2 puts is $1.78 (strike minus VWAP of $0.22). Delta for these near-the-money puts was perched at negative 0.42, or 42%, at Thursday's close, implying a roughly 2-in-5 chance the options will be in the money by April expiration. Should DRYS fail to slide the 12.3% necessary to make these bets profitable, the most yesterday's put buyers have risked is the initial premium paid.
Thursday's preference for near-term puts just highlights a withstanding trend in DRYS' options pits, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR). Specifically, the equity's SOIR of 0.70 ranks in the 98th percentile of its annual range, indicating short-term speculators have been more put-heavy toward DRYS just 2% of the time within the past year.
On the charts, DRYS has been a long-term laggard, with the shares down nearly 44% year-over-year. While the equity has displayed some positive price action in 2013, this upward momentum was recently rejected by the stock's 320-day moving average -- a trendline that served as resistance in early 2012. The security is now trading between this overhead ceiling to the north and its 50-day moving average to the south.