Stocks quoted in this article:
Front-month options on Potash Corp./Saskatchewan (USA) (NYSE:POT) were in higher-than-usual demand yesterday, as evidenced by the 9.4% increase in the equity's 30-day at-the-money implied volatility. Short-term speculators were particularly interested in POT's July 39 call, where roughly one-fifth of the day's total options volume transpired -- making it the most active strike.
The overwhelming majority of the aforementioned calls were bought to open, as speculators bet on POT running north of the $39 mark by the close on July 18, when front-month options expire. While the equity -- perched at $38.07 -- has tacked on 5.6% since canceling layoff plans at its Penobsquis, New Brunswick facility 10 days ago, the stock hasn't closed a session atop the strike price in almost 12 months. As such, delta on the call is parked at 0.27, meaning the option has a roughly 1-in-4 chance of being in the money at expiration.
Given the out-of-the-money status of Potash Corp./Saskatchewan's (USA) (NYSE:POT) July 39 call, some of yesterday's call buyers may have actually been short sellers in disguise, hedging against additional short-term upside. At present, 26.3 million POT shares are sold short, which is equivalent to almost eight sessions' worth of pent-up buying demand, at the equity's average daily volume.