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Navistar Options Volume Soars After Earnings Miss

NAV options traders react to the stock's post-earnings swoon

by 6/7/2012 12:13 PM
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Options speculators have swarmed Navistar International Corporation (NAV - 21.44) today, with both calls and puts flying off the shelves. Around midday, the stock has seen close to 3,000 calls and 6,100 puts change hands, compared to its average midday volume of just 305 calls and 643 puts.

Fueling the feverish activity, the shares of NAV fell to a fresh three-year low of $20.21 out of the gate, after the company confessed to a surprise fiscal second-quarter loss and cut its full-year earnings guidance. At last check, the stock has trimmed its deficit to 23.9% to linger in the $21.44 region.

Getting back to the action in the options pits, the optimistic traders are scooping up the stock's now out-of-the-money July 22.50 call, which has seen more than 1,200 contracts change hands on open interest of just two contracts, pointing to an influx of new positions. Plus, 87% of the back-month calls have crossed at the ask price, suggesting they were bought. By purchasing the calls to open, the buyers are gambling on a rebound north of $22.50 for NAV within the options' lifetime.

On the put side, it looks like the bears may be cashing in their chips by unloading the now in-the-money June 25 put, which has seen more than 900 contracts traded -- mostly at the bid price, pointing to seller-driven volume. This strike is currently home to peak put open interest in the front-month series, with more than 13,200 contracts in residence.

From a broader sentiment perspective, there are quite a few bears likely celebrating NAV's post-earnings plunge. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 7.43. What's more, this ratio sits just two percentage points from a 52-week peak, indicating that options traders have bought to open NAV puts over calls at a near annual-high clip during the past couple of weeks.

In the same vein, the security sports a Schaeffer's put/call open interest ratio (SOIR) of 1.75, indicating that puts nearly double calls among options expiring within three months. Plus, this ratio registers in the 96th annual percentile, implying that near-term options players have rarely been more put-skewed toward NAV during the past 12 months.


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