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To the Dismay of Bulls, Clean Energy Fuels (CLNE) Falls After Earnings

Thursday's call players may have been shorts in disguise

by 3/1/2013 10:05 AM
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Option bulls targeted Clean Energy Fuels Corp. (NASDAQ:CLNE - 12.13) Thursday, as the natural gas concern prepared to unveil earnings after the close. Nearly 4,800 calls were exchanged, or more than three times the average daily volume. Short-term speculators forecast a strong quarterly showing, and scooped up the stock's March 13 calls. Almost all of the 3,072 contracts traded here went off at the ask price, implied volatility jumped 5.2 percentage points, and open interest added 2,430 contracts overnight, pointing to buy-to-open activity.

By purchasing these out-of-the-money calls, traders expect CLNE to finish north of the $13 mark by the time the closing bell sounds on Friday, March 15 -- when front-month options expire. More specifically, the volume-weighted average price (VWAP) for the options is $0.33, making breakeven $13.33 (strike price plus VWAP), or 9.9% above current levels.

These speculators weren't afraid to pay a pretty penny for their bets, either, with implied volatility at this strike inflated relative to the stock's 20-day historical (realized) volatility (47% vs. 30.4%). In other words, CLNE's option premiums were relatively expensive ahead of last night's scheduled event. However, should the stock fail to topple the $13 mark over the next two weeks, the premium paid also represents the maximum risk associated with the play.

Widening the sentiment scope reveals that option traders have been bullishly skewed toward CLNE for some time. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 18,300 calls, compared to 1,699 puts, throughout the past 50 sessions. The resultant call/put volume ratio of 10.77 ranks just 2 percentage points below a 52-week peak, signaling that calls have been accumulated over puts at a near annual-high clip in recent months.

The optimism in the options pits is a bit surprising given CLNE's technical backdrop. Since hitting a record peak of $24.75 in March 2012, the shares have shed almost 51% of their value. More recently, the stock has been wallowing in the $12-to-$14 range since mid-November, and a recent rally attempt was quickly halted by the equity's descending 200-day moving average.

In light of CLNE's trouble on the charts, this rush toward calls could simply be short sellers picking up hedges against their pessimistic positions. In fact, short interest rose 3.6% in the most recent reporting period, and now accounts for a staggering 27.3% of the stock's available float.

To the delight of shorts, CLNE has dropped nearly 4% in today's session, after reporting a wider-than-expected loss in its fourth quarter. At last check, the stock was hovering near $12.13.


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