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L3 Communications Sees a Whirlwind of Call Activity

LLL's lackluster technical performance attracts call sellers

by 3/19/2012 3:05 PM
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L3 Communications Holdings, Inc. (LLL - 70.62) has garnered the attention of call players today, as roughly 4,600 of these options have crossed the tape, more than quadrupling the equity's expected intraday volume. Most popular has been the near-the-money April 70 strike, where more than 4,000 calls have been exchanged -- the majority of them at the bid price, suggesting they were sold. This option currently holds peak call open interest of 4,196 contracts, making it difficult to say with certainty whether new positions are being initiated here today.

This predilection for LLL calls over puts is par for the course. The equity sports a Schaeffer's put/call open interest ratio (SOIR) of 0.55, confirming that calls nearly double puts among options scheduled to expire in three months. This ratio ranks in only the 8th percentile of its annual range, which means that short-term options traders have been more bullishly aligned toward the stock just 8% of the time over the last 52 weeks.

What's more, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals a 10-day call/put volume ratio of 57.82 for LLL, indicating that calls bought to open have outnumbered puts by nearly 58 to one during the last 10 sessions. In fact, this ratio registers in the 99th annual percentile, signaling that speculators have been snatching up bullish options over bearish at an almost annual-high pace.

However, it bears mentioning that short interest on LLL spiked by 11.44% during the most recent reporting period, raising the possibility that some of the recent buy-to-open call volume could be the result of hedging activity by short sellers. Even so, the stock's bearish bandwagon is far from crowded, as these shorted shares account for a modest 2.79% of the equity's float.

Technically, LLL has shed around 9.6% on a year-over-year basis. A closer look at the charts shows that the stock is still hovering just below the $71 area, which has served at troublesome resistance since mid-January.

Heading into the final hour of trading, LLL is off by about 0.5% to explore the $70.62 region.


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