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RadioShack Finds Itself in Bearish Traders' Crosshairs

RSH's ongoing technical struggles attract put players

by 3/30/2012 1:38 PM
Stocks quoted in this article:

Bearish speculators have zeroed in on RadioShack (RSH - 6.21) today, as more than 6,200 puts have changed hands so far, which is about five times above the norm. Over 2,600 of these puts have crossed at the near-the-money May 6 strike -- the majority of them at the ask price, pointing to buyer-fueled volume. This option is currently home to peak put open interest of just 698 contracts, signaling a fresh batch of new positions. In order for traders to make a profit from these bought-to-open puts, the stock must decline beneath the $6 level by the time May options expire.

What's more, RSH's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at 0.89, which ranks in the 87th percentile of its annual range. In other words, investors have been picking up bearish bets over bullish at a faster-than-usual pace.

Further echoing this skeptical attitude toward RSH is the fact that short interest on the electronics retailer spiked by 26.67% over the last two reporting periods, and now accounts for a whopping 30.12% of the RSH's float. It would take roughly eight days to buy back these shorted shares, at the stock's average daily trading volume.

On the technical front, RSH has swallowed a year-to-date loss of 36%, and has lagged the broader S&P 500 Index (SPX) by more than 40% during the last 60 sessions. A glance at the charts shows that the equity will close March well below its 10-month moving average, a trendline that has acted as a firm ceiling over the stock since September 2010.

In the afternoon hours of trading, RSH is down by about 1.6% to explore the $6.21 region.


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