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Bearish Bettors Drive Off with Goodyear Tire & Rubber Puts

Negative news from GT boosts put volume

by 1/11/2012 10:01 AM
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Goodyear Tire & Rubber Company (GT - 13.53) announced yesterday that overall industry tire volumes for the fourth quarter will be weaker than initially forecasted, which may have caused a surge in bearish options activity. Roughly 25,000 puts crossed the tape on Tuesday, reflecting 15 times the equity's average daily volume. More than 6,200 of these puts were exchanged at the near-the-money January 2012 14 strike -- over half of them at the ask price, suggesting they were bought. Open interest on this option rose by 1,630 contracts overnight, indicating that some of the volume at this strike consisted of newly opened positions. This put now holds open interest of 6,600 contracts.

However, this uptick in put activity is out of the ordinary for GT. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 5.65, confirming that calls bought to open have outnumbered puts by more than five to one during the past couple of weeks. This ratio ranks in the 84th percentile of its annual range, meaning that traders have been scooping up bullish options over bearish at a faster-than-usual pace.

What's more, more than half of the analysts following the tire titan seem to share this positive sentiment. According to Zacks, five "buy" or better ratings have been bestowed upon the equity, compared to two "holds" and just one "sell."

On the technical front, GT has lost around 4.5% of its value so far this month, but has outpaced the broader S&P 500 Index (SPX) by approximately 22% during the past 60 sessions. Yesterday's price drop pushed the stock beneath its 10-week moving average, which has contained all but one of the equity's weekly closes since early October. At the start of the session, GT is down about 3.4% to hover at the $13.53 level.


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