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Most Active Options Update: Hertz Global Holdings, Inc. (HTZ)

Despite a negative analyst note, Hertz Global Holdings, Inc. option traders are buying calls

by 8/28/2014 12:54 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is car rental concern Hertz Global Holdings, Inc. (NYSE:HTZ), which has seen accelerated call volume in spite of the stock's dip.

Most Active Options Table

Hertz Global Holdings, Inc. shares were last seen 1.3% lower at $30.33, amid unsubstantiated rumors that CEO Mark Frissora may be stepping down, and after Morgan Stanley trimmed its price target to $19 from $20 and offered up an "underweight" rating. Digging deeper, the analysts wrote, "Our valuation of Hertz shares suggests substantial downside from current levels. We recommend investors ... reduce exposure."

Nevertheless, HTZ calls are trading at an accelerated clip, relative to their average intraday volume, with roughly 12,000 contracts exchanged. For comparison, fewer than 1,000 HTZ puts have changed hands thus far.

Speculators are taking a particular interest in HTZ's short-term options, as the equity's 30-day at-the-money implied volatility (IV) has popped 8.2% to 36.4%. Underscoring that, the September 30 and 31 calls are most active, with the majority of the contracts exchanged on the ask side, suggesting they were bought. Plus, IV is trending higher at both strikes, hinting at new initiations.

By buying the calls to open, the traders expect HTZ to stage a short-term rebound. Specifically, buyers of the 30-strike calls will make money if the stock is perched atop $31.13 -- the strike plus the volume-weighted average price (VWAP) of $1.13 -- at the close on Friday, Sept. 19, when front-month options expire. The 31-strike calls were bought at a VWAP of $0.89, meaning the buyers will make money on a move north of $31.89 -- a record high for the stock.

In both instances, the traders' reward will increase with each step north of the respective breakeven markers, with potential profit theoretically unlimited. Risk, meanwhile, is limited to the initial premium paid for the options, should HTZ settle south of the strikes at expiration.

From a sentiment perspective, today's appetite for bullish bets marks a change of pace among short-term speculators. The security's Schaeffer's put/call open interest ratio (SOIR) of 0.73 sits just 3 percentage points shy of a 12-month peak, implying that near-term options players have rarely been more put-heavy during the past year.

Technically speaking, Hertz Global Holdings, Inc. (NYSE:HTZ) has added more than 25% during the past year, with pullbacks contained by its 200-day moving average. In fact, just a session before withdrawing its financial guidance earlier this month, HTZ tagged a record high of $31.61.


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