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Green Mountain Coffee Roasters Inc. (GMCR) Bulls Eye Annual Highs

GMCR's May 55 call is seeing buy-to-open activity today

by 4/16/2013 1:01 PM
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Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) was up 3.4% at last check to trade at $56.50, and the positive price action is not being lost on option players. By the numbers, more than 6,600 calls have crossed the tape, doubling the number of puts that have changed hands. GMCR's May 55 call is the most active strike so far, where more than 2,000 contracts have traded for a volume-weighted average price (VWAP) of $5.24. The majority of these contracts have gone off at the ask price, and implied volatility was last seen higher, hinting at buy-to-open activity.

By purchasing these in-the-money calls, traders expect GMCR to maintain its perch atop the $55 mark over the next five weeks. More specifically, the calls will become profitable with each step north of $60.24 (strike plus VWAP) Green Mountain takes through the close on Friday, May 17, when back-month options expire. This breakeven mark represents territory not charted by the stock since March 2012. Option players must be fairly confident in their optimistic outlook, as implied volatility at this strike is currently inflated relative to the security's 20-day historical (realized) volatility (76% vs. 37.9%). In other words, premium is relatively expensive at the moment.

Today's preference for calls diverges from the recent trend witnessed in GMCR's options pits, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 10 sessions, traders have bought to open 13,531 puts, compared to 10,937 calls. The resultant put/call volume ratio of 1.24 ranks higher than 75% of other such readings taken in the past year, suggesting puts have been accumulated over calls at a faster-than-usual clip in recent weeks.

Even more telling is GMCR's Schaeffer's put/call open interest ratio (SOIR) of 1.96. Not only does this show that put open interest nearly doubles call open interest among options expiring in three months or less, but it ranks in the 99th percentile of its annual range. What this means is that short-term speculators have been more put-heavy toward the stock just 1% of the time within the last year.

This bearishly skewed bias has not relegated itself to the options pits, though. Short interest currently accounts for a brow-raising 26.7% of the equity's available float, representing more than 14 sessions of pent-up buying demand. Additionally, five out of 14 analysts maintain a "hold' or "strong sell" suggestion toward Green Mountain Coffee Roasters Inc., and the consensus 12-month price target of $57.50 rests only 1.8% above the stock's current price.

What's surprising is the lofty levels of skepticism surrounding an equity that has advanced nearly 37% year-to-date, and outperformed the broader S&P 500 Index (SPX) by almost 28 percentage points over the past three months. From a contrarian perspective, a reversal in sentiment among the options crowd, a capitulation from short sellers, or a re-evaluation of ratings from the brokerage bunch could help to fuel Green Mountain Coffee Roasters Inc.'s (NASDAQ:GMCR) fire. In fact, the stock rallied to a new annual peak of $59.30 earlier this month on the heels of some upbeat analyst attention.


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