Stocks quoted in this article:
DryShips Inc. (NASDAQ:DRYS) is up 10% at $3.96 -- a few pennies off its two-year high of $3.99 (notched earlier today) -- and options volume is at an 80% mark-up to the norm. Most of the attention being levied at the ocean transporter is on the call side, where roughly 19,000 contracts have traded, compared to fewer than 3,750 puts. A variety of short- and intermediate-term strikes are being targeted, including the January 2014 3.50-strike call, and the October 2 and 3.50 calls.
Most of the action at the January-dated call transpired at the ask price, and implied volatility (IV) is running higher, suggesting buy-to-open (BTO) activity -- a theory that International Securities Exchange (ISE) data upholds (though nothing's certain, since open interest still outstrips current volume levels). The bullish bets were initiated at a volume-weighted average price (VWAP) of $0.76, so breakeven for the trade at expiration rests at $4.26 (strike price plus VWAP).
Likewise, the bulk of the October-dated calls appear to be of the BTO sort. Nearly 80% of the October 2 calls traded off the ask, volume outstrips open interest, and information from the ISE shows that some of the transactions did in fact result in new long positions. Meanwhile, the majority of the October 3.50 calls crossed the tape at the ask price, and IV has surged 5.7 percentage points, hinting at the creation of bullish wagers. Breakeven on the two options is $3.77 and $3.95, based on their respective VWAPs of $1.77 and $0.45.
Currently, all of the aforementioned options are in the money. However, even if DryShips Inc. (NASDAQ:DRYS) sinks below either of the given strike prices, the most the traders can lose is the initial premium paid. At last check, the stock's 30-day, at-the-money IV was on the rise, gaining 5.1 percentage points, or 6.5%, to 84.1%.
Finally, in case you missed it, my colleague Andrea Kramer highlighted DRYS a couple of weeks ago for a potential contrarian play, based on its combination of strong technicals (year-to-date, the shares are up 140%) and lingering pessimism.
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