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Bearish Bettors Show an Appetite for Office Depot Puts

Put players shrug off ODP's stellar technical performance

by 2/23/2012 1:47 PM
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Office Depot (ODP - 3.07) has been ambushed by bearish traders today, as roughly 3,600 puts have crossed the tape so far, representing an impressive 35 times the equity's expected intraday volume. The bulk of the action has centered around the near-the-money March 3 strike, where nearly 3,100 of these puts have changed hands -- about half of them at the ask price, suggesting they were bought. This option is currently home to peak put open interest of just 453 contracts, so it's safe to assume that new positions are being initiated here today. By purchasing these puts to open, investors are predicting that the stock will fall below the $3 level by the time front-month options expire.

This rise in put volume runs counter to ODP's recent call-buying trend. The 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at a whopping 75.27, confirming that calls bought to open have outnumbered puts by more than 75 to one during the past two weeks. This ratio ranks in the 88th annual percentile, which means that speculators have been snapping up bullish options over bearish at a faster-than-usual clip.

What's more, the Schaeffer's put/call open interest ratio (SOIR) for ODP checks in at a meager 0.12, indicating that calls vastly outnumber puts among options scheduled to expire in three months. This ratio sits just seven percentage points above a yearly nadir, signaling that near-term options players have rarely been more call-heavy toward the stock over the past year.

However, it should be noted that while short interest on the office product giant fell by 9.05% during the most recent reporting period, these shorted shares still account for a lofty 9.82% of ODP's float -- or almost seven days' worth of pent-up buying demand, at the stock's average daily trading volume. This could be a sign that some short sellers may be buying calls to hedge their bearish bets.

A closer look at ODP's technical performance shows that the shares are ahead by more than 42% so far this year, and have outpaced the broader S&P 500 Index (SPX) by close to 31% during the past 60 days. On the charts, the stock is enjoying newfound support at its 200-day moving average, which had eluded the equity since March 2011.

In the afternoon hours of trading, ODP is ahead by more than 2% to explore the $3.07 area. Looking ahead, the retailer is due to report earnings before the market opens next Tuesday, Feb. 28.


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