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Sparked by a serious run up the charts recently, option traders have really been bullish on electronics retailer RadioShack Corporation (NYSE:RSH - 3.36) as of late. But that certainly was NOT the case Wednesday, when there were more than four times as many puts traded as normal. The most popular of these was the July 2 put, which saw nearly 2,500 contracts change hands.
With volume coming in at seven times open interest, 94% of the contracts going off at the ask price, and implied volatility ticking up slightly, a good portion of these strikes were likely bought to open. The stock needs to close at or below $1.86 (strike minus the volume-weighted average price [VWAP] of $0.14) on the expiration date of July 19 to make a profit. If the stock doesn't reach those depths, all the investors lose is the premium paid. And the option's current delta of negative 0.11 gives this option about a 1-in-10 chance of finishing in the money.
Those long odds are understandable, given RSH's recent rise up the charts. The equity had been on a severe decline for more than a year until a two-day jump of nearly 40% perked up the stock in late January, and now it's up more than 58% on the year. The stock has bounced nearly 77% from its late-November lows, with the rally spurred along by a surprisingly profitable earnings report in late February. And RSH is beating the S&P 500 Index (SPX) by 44 percentage points over the last 40 trading days.
And as referenced earlier, Wednesday's trades are definitely going against the grain, sentiment-wise. The equity's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is an eye-popping 8.71, and that's just 4 percentage points below an annual high. In other words, not only are option traders buying nearly nine RSH calls to open for every put, but that call buying is nearly as popular as it has been all year.