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Despite Lackluster Guidance, Goodyear Tire Lures Call Players

Call volume ramps up on GT, despite weaker-than-expected quarterly earnings

by 2/14/2012 1:30 PM
Stocks quoted in this article:

Goodyear Tire & Rubber Company (GT - 13.23) reported weaker-than-expected fourth-quarter earnings and forecast flat full-year sales volumes before this morning's opening bell, but still managed to boast record sales amid increased prices. Bullish investors appear to be focused on the latter, as roughly 25,000 calls have crossed the tape so far, which is 15 times above the norm. More than 11,100 of these calls were exchanged at the out-of-the-money March 14 strike -- with about three-quarters of them at the ask price, pointing to buyer-fueled volume. This option currently holds peak call open interest of just 6,319 contracts, making it safe to assume that new positions are being initiated here today. By purchasing these calls to open, speculators are counting on the stock to muscle north of $14 by the time back-month options expire.

This affinity for calls over puts is business as usual for GT. The 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at 2.96, confirming that calls bought to open have nearly tripled puts during the past two weeks. This ratio registers in the 67th percentile of its annual range, which means that traders have been scooping up bullish bets over bearish at an accelerated clip.

Elsewhere, the majority of analysts following the tire titan also appear to feel optimistic toward GT. According to Zacks, the stock boasts five "buy" or better recommendations, compared to just two "hold" or worse ratings.

Examining GT's technical performance, however, the equity has lost about 7% of its value year-to-date, and has underperformed the broader S&P 500 Index (SPX) by roughly 7% during the past 60 sessions. On the charts, the stock is in danger of finishing the week below support at its 20-week moving average for the first time since late November.

In the afternoon hours of the session, GT is down about 5.3% to hover at $13.23.


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