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Option Players Bet On Summer Slump for Dick's Sporting Goods Inc (DKS)

Traders scooped up over 11,000 DKS' August 45 puts, creating a new peak open interest spot

by 7/3/2013 10:08 AM
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Dick's Sporting Goods Inc (NYSE:DKS) followed the broader market downturn yesterday, shedding 1.3% to land at $49.33. Things also went sour in the retailer's options pits, thanks to a "sell" initiation at Belus Capital Advisors. All in all, put volume ran at 46 times its typical amount, as traders wagered on additional downside for the stock.

Drawing the most attention was DKS' August 45 put, which saw nearly 11,500 contracts cross the tape at a volume-weighted average price (VWAP) of $0.58. Nearly three-quarters of the contracts traded at the ask price, signaling buyer-driven activity. Meanwhile, open interest added more than 10,000 positions overnight, confirming the creation of new bearish bets. The strike is now home to peak open interest.

In order for the traders to end up in the black, they need Dick's Sporting Goods to journey south to $44.42 (strike price less the VWAP) by back-month options expiration. Even if the shares stall north of that mark, the most the bears have to lose is the premium paid -- which is quite modest, considering the Schaeffer's Volatility Index (SVI) of 25%, which ranks in the 23rd percentile of its annual range.

Yesterday's put-skewed trading was more of the same for Dick's. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has a 10-day put/call volume ratio of 16.32. That reading is just 1 percentage point from an annual high.

As a result, DKS' Schaeffer's put/call open interest ratio (SOIR) is 2.35, meaning put open interest is more than twice call open interest for options expiring in the next three months. The SOIR has been exceeded just 2% of the time in the last 52 weeks, again demonstrating the prevailing pessimistic winds blowing toward the athletics retailer.

It's no surprise, either, based on Dick's Sporting Goods Inc's (NYSE:DKS) less-than-impressive technicals. The stock is more-or-less flat in the past year -- or nearly 17 percentage points behind the broader S&P 500 Index (SPX).

Moreover, between now and August expiration is the security's earnings release. DKS has beat or met analysts' per-share profit estimates in three of its last four turns in the confessional, yet a day after the announcements, the stock price has averaged a 2.3% loss.


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