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Option Brief: March has been kind to DryShips Inc. (NASDAQ:DRYS) thus far, with the stock up more than 10% at $4.07. What's more, the shares are on pace to end the week north of both their 10-week and 20-week moving averages for the first time since mid-January, and option traders yesterday placed their bets on more upside in the near term.
By the closing bell, the shipping concern had seen roughly 37,000 calls change hands -- almost triple the average daily volume, and five times the number of DRYS puts exchanged. Digging deeper, new positions were established at the weekly 3/7 4.50-strike call and the April 5 call, which saw open interest increase by roughly 2,100 contracts and 3,500 contracts, respectively, overnight. Plus, the majority of the calls traded near the ask price, pointing to buyer-driven volume.
By purchasing the weekly calls to open, the buyers expect DRYS to surmount $4.50 by the closing bell today, when the options expire. Buyers of the April-dated calls are more bullish, as they expect DRYS to topple $5, which would mark a near-two-year peak. However, they're allowing more time for their bullish predictions to pan out: about six weeks, as opposed to a day.
Either way, risk is limited to the initial premium paid for the calls, should the contracts remain out of the money through expiration. It's good, then, that DryShips Inc.'s (NASDAQ:DRYS) Schaeffer's Volatility Index (SVI) of 63% sits in the bottom quarter of its annual range. In other words, DRYS' short-term options are attractively priced, from a volatility standpoint.