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Eagle Bulk Shipping Inc. (EGLE) Traders See a Post-Earnings Plunge

Eagle Bulk Shipping Inc.'s April 3 put was bought to open on Friday

by 3/31/2014 9:24 AM
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Unlike sector peer DryShips Inc. (NASDAQ:DRYS), Eagle Bulk Shipping Inc. (NASDAQ:EGLE) has seen a fair share of bearish attention from option traders of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 3.14, which ranks in the 75th percentile of its annual range. Simply stated, puts have been bought to open over calls at an accelerated clip in recent weeks.

It was a trend witnessed on Friday, when puts changed hands at nearly three times the typical daily rate, and outpaced calls by a roughly 4-to-1 margin. Against this increased demand, the equity's 30-day at-the-money implied volatility (IV) rose 3.7% to 128.8% -- its loftiest perch in more than two years.

The most active strike was the April 3 put, which saw 1,655 contracts cross the tape -- mostly at the ask price. IV rose 8.5 percentage points, and nearly all of the volume translated into open interest over the weekend. Summing it all up, it seems safe to assume that new bearish bets were initiated.

With EGLE trading at $4.04, it would take a drop of almost 26% in order for these puts to move into the money. Should the stock fail to make a move of such magnitude, the most the traders stand to lose is the initial premium paid. However, according to the stock's Schaeffer's Volatility Index (SVI) of 127% -- which ranks higher than 96% of similar readings taken in the past year -- premium on EGLE's front-month options is expensive, from a volatility standpoint.

The relatively pricey premium comes as the company prepares to tell all in the earnings confessional this week. Given the stock's historical price action in the wake of the company's quarterly results, the recent crop of put buyers may be bracing for more of the same. Specifically, over the past seven quarters, the equity has logged an average loss of 8.8% and 5.1% in the day and week, respectively, after reporting earnings. What's more, on the heels of issuing an earnings miss last November, Eagle Bulk Shipping Inc. (NASDAQ:EGLE) shed 29.3% in the subsequent session.


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