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Seagate Technology Bulls Eye Short-Term Gains

Speculators roll the dice with STX's January calls

by 12/5/2012 2:22 PM
Stocks quoted in this article:

Bullish traders are zeroing in on Seagate Technology PLC (NASDAQ:STX - 27.73) today, as roughly 30,000 calls have crossed the tape so far. This is more than three times the equity's expected intraday volume, and 1.67 times the number of puts exchanged. Most popular has been the January 2013 29 strike, which has seen more than 8,400 calls change hands -- almost all of them at the ask price, suggesting they were bought. These out-of-the-money contracts traded at a volume-weighted average price (VWAP) $0.84 each. Meanwhile, today's volume has surpassed current open interest levels, while implied volatility was last seen 4.4 percentage points higher -- both of which underscore our suspicion of newly added positions. By purchasing these calls to open, traders are counting on the stock to rise north of $29.84 (strike price plus the VWAP) by the time January options expire.

Today's optimistically slanted activity runs counter to STX's current trend. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), puts bought to open have outpaced calls during the past month, as evidenced by the security's 20-day put/call open interest ratio of 1.37. In similar fashion, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.78 ranks higher than 75% of other such readings taken within the last 12 months. Or in simpler terms, near-term traders have been more put-heavy toward the shares just one-fourth of the time over the past year.

Also of note, short interest on STX surged by more than 39% during the past month, and now accounts for a lofty 11% of the equity's available float. It would take more than four days to unwind these bearish bets, at the stock's average pace of trading.

Meanwhile, most of the brokerage firms following the data storage provider maintain a cautious stance toward STX. Only four have deemed the stock worthy of a "strong buy" rating, compared to 14 tepid "holds," and one "sell" recommendation. Even more telling, the security's average 12-month price target is docked at $28.76 -- less than 4% above its current perch.

This caution toward STX is surprising, considering the equity's year-to-date gain of more than 69%, as well as its year-over-year advance of about 61%. What's more, today's near-5% climb has pushed the shares atop their 20-day moving average for the first time in more than three weeks. Should the equity keep trekking higher, today's January bulls could have something to cheer about.


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