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Green Mountain Option Players See a Short-Term Surge

Calls have been in favor on GMCR in recent weeks

by 11/21/2012 10:27 AM
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There has been a growing taste for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR - 28.00) calls among option players at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's 10-day call/put volume ratio (measuring buy-to-open activity) has risen to 1.40, from its 50-day call/put volume ratio of 0.97. What's more, this shorter-term ratio ranks higher than 66% of other such readings taken in the past year, suggesting calls have accumulated over puts at a faster-than-usual clip in recent weeks.

Even more telling of this trend toward calls is GMCR's Schaeffer's put/call open interest ratio (SOIR) of 0.73. Not only does this show that call open interest outweighs put open interest among options with a shelf life of three months or less, but it ranks in the lowest percentile of its annual range, indicating short-term speculators are more call-heavy now than at any other point during the last year.

This campaign for calls was continued in yesterday's session. Roughly 127,000 contracts crossed the tape, more than six times the average daily volume for call options. Meanwhile, around 40,000 puts were exchanged, about three times the expected daily pace.

Near-term call players turned their attention to GMCR's weekly series of options, honing in on the 30 strike. Of the nearly 2,500 contracts traded, a healthy portion crossed at the ask price, and open interest rose overnight, hinting at buy-to-open activity. By initiating these long calls, speculators will profit with each step north of $30.42 (the strike plus the volume-weighted average price of $0.42) GMCR takes through week's end (when these options expire). This represents an 8.6% premium to the stock's current perch.

This developing disposition among option players could be related to GMCR's recent rebound on the charts. Despite sitting on a 37.8% year-to-date deficit, the stock has outperformed the broader S&P 500 Index (SPX) by nearly 20 percentage points over the last month. In fact, GMCR has rallied 21.2% since last Thursday. The equity's upward momentum has been stoked by yesterday's announcement that ex-Coca-Cola (NYSE:KO) exec Brian Kelley will take the reins as GMCR's new CEO, which prompted a bevy of bullish brokerage notes. The stock is now on pace to finish the week above its 32-week moving average -- a feat not accomplished since October 2011.

This uptick in call volume may also represent short sellers picking up hedges on their pessimistic positions, as GMCR makes a run higher. Short sellers increased their bearish exposure by 11% during the last two reporting periods, and short interest now accounts for a brow-raising 39% of the stock's available float. What's more, it would take more than 12 sessions to cover these shorted shares, at GMCR's average daily pace of trading.

The equity's positive price action is continuing in today's session. At last check, GMCR had trekked 0.5% higher to hover near $28.


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