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Longer-Term Zipcar Traders Gamble on Support

ZIP's sluggishness doesn't deter put sellers

by 12/20/2012 9:56 AM
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Zipcar Inc (NASDAQ:ZIP - 8.38) saw a staggering rise in put activity on Wednesday, as nearly 5,900 of these options changed hands during the course of the session. This was 54 times the norm, and more than six times the number of calls traded. Most popular proved to be the May 7.50 strike, where close to 5,200 puts were exchanged -- 78% of them at the bid price, implying they were sold.

Specifically, these out-of-the-money options crossed at a volume-weighted average price (VWAP) of $0.72. Open interest at this strike rose by 3,085 contracts overnight, pointing to the initiation of new positions. This option now holds peak put open interest of 3,618 contracts. By selling these puts to open, traders are expecting the security to remain north of the $7.50 mark through May expiration -- rendering the options worthless, and allowing the put sellers to pocket the premium received.

This appetite for puts over calls is in keeping with the stock's current trend. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 3.11 for ZIP. Or in simpler terms, puts bought to open have more than tripled calls during the last two weeks. This ratio is just 6 percentage points shy of a bearish peak, indicating speculators have been snapping up puts over calls near an annual-high pace.

Further evidence of this bearish attitude toward the car-sharing service is the fact that short interest currently accounts for more than 19% of ZIP's available float. It would take almost 12 days to cover these shorted shares, at the stock's average pace of trading.

The brokerage bunch seems less than enthused about ZIP's prospects, as well. In fact, not one analyst has deemed the security worthy of a "buy" or better rating. Meanwhile, the stock sports five lukewarm "holds," and one "sell" recommendation. What's more, the equity's average 12-month price target of $8.29 represents a discount to yesterday's closing price of $8.48.

This wary attitude toward ZIP isn't exactly press-stopping news, considering the stock's year-over-year decline of around 42%. Although the security has recovered about 30% since tagging an annual low of $5.90 on Nov. 9, it remains pinned just beneath its 32-week moving average -- a trendline that has yet to be conquered by the Wall Street sophomore.


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