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Skechers USA Seduces Option Bulls

SKX tagged a new high after scoring a relatively rare upgrade

by 6/11/2012 2:19 PM
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It's no surprise to find call buyers swarming Skechers USA Inc (SKX - 19.97) today, with the stock tagging a new annual high of $20.23 in the wake of an upgrade to "buy" from "neutral" at Sterne Agee. In afternoon trading, the shoe concern has seen roughly 5,700 calls cross the tape -- about six times its average intraday call volume. Meanwhile, just over 1,100 SKX puts have changed hands.

Attracting the most attention has been the June 18 call, which has seen nearly 2,300 contracts traded. However, while the majority of the calls have crossed at the ask price, suggesting they were bought, the 18 strike is already home to peak call open interest of nearly 3,300 contracts in the front-month series. In other words, we can't yet say with certainty that new positions are being added here today.

If recent history is any guide, however, we'll likely see an influx of call open interest come tomorrow morning, when today's volume shakes out. During the past 10 sessions, SKX has racked up a call/put volume ratio of 32.74 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio stands just three percentage points from a 52-week peak, implying that options traders have bought to open SKX calls over puts at a near annual-high clip during the past couple of weeks.

Further reflecting the growing optimism among options players is the stock's descending Schaeffer's put/call open interest ratio (SOIR), which stands at 0.44, indicating that calls more than double puts among options slated to expire within three months. Plus, this ratio ranks in the seventh annual percentile, suggesting short-term options players have rarely been more call-skewed toward SKX during the past 12 months.

However, while the options crowd has flocked to SKX's bullish bandwagon, there are still plenty of skeptics on Wall Street. Despite outperforming the broader S&P 500 Index (SPX) by 46.6% during the past three months, SKX boasts just one "buy" or better rating from the analyst community, compared to five "hold" or worse recommendations. Likewise, short interest accounts for 15.2% of the stock's total available float, and would take about six sessions to unwind, at the equity's average daily trading volume.

From a contrarian standpoint, the lingering pessimism plaguing SKX could work to the stock's advantage. Should the security extend its uptrend, additional upgrades or a short-covering rally could translate into a boon for the stock.


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