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Rival's Stake Prompts Put Selling on Central European Distribution

Russian Standard Vodka said it bought a 9.9% stake in CEDC

by 11/29/2011 11:16 AM
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The shares of Central European Distribution Corp. (CEDC - 4.42) skyrocketed right out of the gate today, thanks to news that rival Russian Standard Vodka has bought a 9.9% stake in the firm. In light of the disclosure, CEDC's options pits are also quite active, with short-term premium sellers swarming the alcohol issue.

Within the first two hours of trading, CEDC has already seen roughly 18,000 puts cross the tape -- almost three times its average daily put volume. Nearly all of the volume has changed hands at the out-of-the-money December 2.50 put, which has seen roughly 16,500 contracts traded -- mostly at the bid price, suggesting they were sold. Plus, implied volatility on the front-month put was last seen 27.1 percentage points higher, hinting at an influx of new positions.

By writing the puts to open, the sellers are expecting CEDC to remain north of the $2.50 level through the next several weeks. In this best-case scenario, the puts will expire worthless, allowing the traders to retain the entire premium received at initiation. What's more, it appears CEDC's short-term options are garnering relatively rich premiums at the moment, as evidenced by the stock's Schaeffer's Volatility Index (SVI) of 193% -- which stands just one percentage point shy of an annual peak.

From a broader sentiment standpoint, today's rally could spook some of the skeptics on Wall Street. According to Zacks, not one analysts considers CEDC worthy of a "buy" or better endorsement. Meanwhile, short interest accounts for 15.5% of the stock's total available float, representing more than a week's worth of pent-up buying demand, at CEDC's average daily trading volume.

At last check, CEDC has skyrocketed 30% to flirt with the $4.42 level. However, the shares seem to have run into a wall in the form of their 10-week moving average, which -- along with its 20-week cohort -- has suppressed nearly all of the security's weekly advances in 2011.


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