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Front-Month Put Players Take a Shine to Shutterfly

SFLY attracts put sellers, despite poor price action

by 4/10/2012 9:48 AM
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Shutterfly, Inc. (SFLY - 27.68) saw an unusual jump in put activity yesterday, as roughly 7,400 of these options crossed the tape, reflecting 16 times the equity's average daily volume. Most active was the out-of-the-money April 25 strike, where close to 5,600 puts were exchanged -- over half of them at the bid price, suggesting they were sold. Open interest at this strike rose by 1,760 contracts overnight, pointing to an influx of new positions. This option is now home to peak put open interest of 4,765 contracts. By selling these puts to open, traders are counting on the stock to stay above $25 through front-month expiration.

This surge in put volume marks a change of pace for SFLY. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at 4.85, confirming that calls bought to open have outnumbered puts by almost five to one during the past two weeks. This ratio arrives in the 90th annual percentile, indicating that investors have been picking up calls over puts at a much faster-than-usual pace.

Meanwhile, short interest on the photo services provider spiked by about 33% during the last two reporting periods, and now accounts for a hefty 23% of SFLY's float. This could mean that short sellers looking to hedge their bearish bets are responsible for some of the aforementioned call volume.

Technically speaking, SFLY has swallowed a loss of more than 45% on a year-over-year basis, and has underperformed the broader S&P 500 Index (SPX) by around 10% during the last 20 days. On the charts, the stock closed Monday's session beneath its 50-day moving average for the first time since early February, and is already on pace to do the same again today.

In the first hour of trading, SFLY is down about 2% to hover at $27.68.


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