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Speculators Are Hungry for Diamond Foods Calls

DMND's March-dated options entice call players

by 1/24/2012 3:35 PM
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Traders have shown an appetite for Diamond Foods (DMND - 35.40) calls today, as roughly 11,000 of these options have changed hands so far, which is triple the equity's expected daily volume. More than 2,200 calls have crossed at the deep-out-of-the-money March 50 strike -- over half of them at the bid price, signaling they were sold. Currently, this option holds open interest of just 1,223 contracts, pointing to a fresh batch of new positions. If these calls are being sold to open, investors are betting on DMND to remain south of the $50 level through back-month expiration.

This surge in call activity is par for the course on DMND. The Schaeffer's put/call open interest ratio (SOIR) stands at 0.97, confirming that calls outnumber puts among options expiring within three months. This ratio ranks in the 32nd percentile of its annual range, meaning that near-term options players have been more bullishly oriented toward the stock just 32% of the time during the past 12 months.

Elsewhere, short interest on the snack guru declined by almost 17% during the last two reporting periods. However, these shorted shares still make up a staggering 47.9% of DMND's float, which could indicate that some of the recent call volume is attributable to short sellers seeking to hedge their bearish bets.

Examining DMND's technical performance, the equity has gained over 9% year-to-date, but has woefully underperformed the broader S&P 500 Index (SPX) by approximately 53% during the past 60 sessions. Still, the stock appears to be on pace to finish a second consecutive week above resistance at its 10-week moving average, which had plagued the equity since early October.

In the last hour of the session, DMND is up about 8.2% and is trading at $35.40.


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