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Speculators Take a Shine to Pan American Silver Calls

Call volume jumps on PAAS, despite lackluster technical performance

by 1/26/2012 11:14 AM
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Pan American Silver Corporation (PAAS - 22.54) received several price-target cuts on Tuesday, after announcing plans to acquire Minefinders on Monday. However, call players remained undaunted toward the precious metals concern yesterday. Roughly 20,000 of these options were exchanged, reflecting six times the equity's average daily volume. Nearly 4,100 calls were traded at the out-of-the-money March 25 strike -- the majority of them between the ask and bid prices, making it difficult to discern whether they were bought or sold. However, open interest on this strike jumped by 4,005 contracts overnight, signaling that most of the volume on this call consisted of newly opened positions. This option is now home to peak call open interest of 4,181 contracts.

This preference for calls over puts is business as usual for PAAS. The Schaeffer's put/call open interest ratio (SOIR) stands at 0.35, indicating that calls nearly triple puts among options set to expire within three months. In fact, this ratio rests just two percentage points above a yearly nadir, which means that short-term traders have been more call-heavy toward the stock just 2% of the time over the past 12 months.

What's more, PAAS' 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sits at a whopping 17.97, confirming that calls bought to open have outnumbered puts by almost 18 to one during the last two weeks. This ratio registers in the 90th percentile of its annual range, conveying that traders are snapping up bullish options over bearish at a near-annual high pace.

Technically, PAAS has added about 3.4% so far this month, yet has underperformed the broader S&P 500 Index (SPX) by more than 27% during the past 20 sessions. On the charts, the stock is poised to finish a second consecutive month beneath its 40-month moving average, which had served as support since September 2010.

At last check, however, PAAS is up about 0.8% and is trading at $22.54.


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