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Suntech Power's (STP) Bounce Does Little to Dissuade Option Bears

STP's March 1.50 puts are seeing buy-to-open activity today

by 3/7/2013 11:40 AM
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Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP - 1.20) is trading roughly 2.6% higher in today's session; however, puts have emerged as the options of choice. More than 5,300 contracts have crossed the tape thus far, more than doubling the average intraday volume for put options. By contrast, fewer than 2,800 calls have changed hands. Bears are honing in on STP's March 1.50 put, where over 1,500 contracts have traded, mostly at the ask price. With implied volatility last seen 18 percentage points higher, it can be assumed that a portion of today's activity is of the buy-to-open variety.

The volume-weighted average price (VWAP) for the in-the-money puts is $0.53, meaning traders will begin to profit with each step south of $0.97 (strike price less VWAP) STP takes through next Friday's close, when front-month options expire. Delta at this position is currently docked at negative 0.52, or 52%, implying a roughly 1-in-2 chance the put will finish in the money by expiration.

Digging a bit deeper into the information, today's put buyers were willing to pay a pretty penny for their bearish bets, considering the equity's Schaeffer's Volatility Index (SVI) of 345% ranks in the top percentile of its annual range. More specifically, implied volatility at the March 1.50 put is currently elevated relative to STP's 20-day historical (realized) volatility (375% vs. 94.3%). In other words, the stock's short-term options are relatively expensive at the moment.

Expanding the sentiment scope reveals that option players have preferred STP puts over calls in recent weeks. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 16,459 puts, compared to 3,636 calls. The resultant put/call volume ratio of 4.53 ranks higher than 89% of other such readings taken in the past year, suggesting a healthier-than-usual appetite for puts of late.

It's not hard to see why option players have been bearishly aligned when looking at STP's technical backdrop. In addition to lagging the broader S&P 500 Index (SPX) by more than 33 percentage points over the past 40 sessions, the stock is staring at a roughly 22% year-to-date deficit. What's more, the equity dropped below its 200-day moving average last Thursday, and STP's subsequent attempts to regain its foothold have quickly been stunted by the psychologically significant trendline.

As mentioned, though, the equity is trading higher today, after the solar panel maker settled with GSF Capital regarding a reportedly fraudulent investment fund. At last check, STP was hovering near $1.20.


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