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Options Players Show an Unusual Interest in Schnitzer Steel Calls

But is this uptick in SCHN call volume the result of shorts hedging?

by 12/2/2011 1:43 PM
Stocks quoted in this article:

Schnitzer Steel Industries (SCHN - 47.26) has been the focus of some unusual bullish attention today, as nearly 1,100 calls have been traded so far, reflecting eight times the equity's expected intraday call volume. At least 1,000 of these calls changed hands at the out-of-the-money December 49 call -- more than half of them at the ask price, pointing to buyer-driven activity. This option is currently home to open interest of just 107 contracts, making it safe to say that new positions are being initiated here today.

What's more, the Schaeffer's put/call open interest ratio (SOIR) for SCHN checks in at 0.72, confirming that calls outnumber puts among options set to expire within three months. In fact, this ratio ranks in only the 14th percentile of its annual range, meaning that short-term options players have been more optimistically aligned toward the stock just 14% of the time during the past 12 months.

However, short interest on SCHN climbed by 10.11% over the past two reporting periods, suggesting that some of the recent call volume could be the result of shorts seeking to hedge their bets. Either way, these bearish plays represent 7.10% of the equity's float. At the stock's average daily trading volume, it would take more than six days to cover these shorted shares.

On the technical front, SCHN is down roughly 29% year-to-date, but has outperformed the broader S&P 500 Index (SPX) by more than 10% during the past 40 sessions. On the charts, the stock appears on pace to close above its 10-day and 20-day moving averages for the third consecutive session, snapping a month-long slump below these trendlines.

At last check, SCHN is up about 2.5% and is trading at $47.26.


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