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Analyst Upgrade Gives Zoltek a Bullish Options Boost

ZOLT sees a jump in back-month call volume

by 3/29/2012 10:19 AM
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Zoltek Companies, Inc. (ZOLT - 11.03) received an upgrade to "hold" from "underperform" at Needham Research on Wednesday morning, after the company announced a forthcoming partnership with auto parts maker Magna International (MGA). As a result, nearly 3,100 calls changed hands yesterday, which was seven times above the norm. More than 1,400 of these calls were traded at the out-of-the-money May 12.50 strike -- three-quarters of them at the ask price, pointing to buyer-driven volume. This strike saw an overnight rise in open interest of 944 contracts, signaling an influx of new positions. This option now carries peak call open interest of 1,587 contracts. By purchasing these calls to open, investors are wagering that the stock will surmount the $12.50 level by May expiration.

This affinity for calls over puts is more of the same for ZOLT. The carbon fiber manufacturer sports a Schaeffer's put/call open interest ratio (SOIR) of 0.43, confirming that calls more than double puts among options scheduled to expire in three months. This ratio arrives in the 18th percentile of its annual range, which means that short-term options players have been more call-heavy toward the stock just 18% of the time during the past 12 months.

However, although short interest on ZOLT fell by 9.6% over the last two reporting periods, these bearish plays still account for a hefty 17.4% of the equity's float -- raising the possibility that some of Wednesday's call volume was the result of hedging activity by short sellers. Either way, it would take almost 16 days to cover these shorted shares, at the stock's average daily trading volume.

Technically, ZOLT has gained more than 45% so far this year, and has bested the broader S&P 500 Index (SPX) by more than 19% during the last 60 days. A look at the charts shows that the stock is poised to close a second consecutive month atop its 40-month moving average, which had served as resistance March 2011.

At last check, however, the equity is off by 1.5% to hover at $11.03.


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