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Put volume has picked up steam on Starwood Hotels & Resorts Worldwide, Inc (HOT - $50.70) today, with option bears scooping up near-the-money bets in the August series. Overall put volume is running seven times ahead of an average day and the focal point is the August 50 strike.
Already today, 6,450 contracts have changed hands at this strike, which came into the session with open interest of just 2,850. A block of 6,400 contracts is responsible for most of this volume. It traded shortly before 11:00 a.m. at $3.35 per contract, the ask price at the time.
It is exceedingly likely the same trader opted to close out 3,900 June 55-strike puts at the same time, selling them for $3.90 apiece. So it seems the trader sold a block of front-month, in-the-money puts and bought a larger block of later-dated, out-of-the-money puts. Rolling the position to a later month is a common strategy, especially during expiration week, but adding to the position and committing to a lower strike is a sign of increased bearishness. Long puts such as these have unlimited potential gains (down to zero) while the maximum loss is capped at the premium paid.
Put activity has been growing in HOT shares for some time. In the last 50 days, the number of puts bought to open at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) outweighs the number of bought-to-open calls, nine-to-five. The put/call volume ratio of 1.8 is higher than 98% of the past year's worth of data points.
On the other hand, short interest has been spiraling lower since November, losing 22% last month alone. Short interest is now just 2.8% of the stock's float and it would take 1.9 days to unwind all existing shorted HOT shares. The chances of a short-covering rally, therefore, are slim to none.
Year-to-date, HOT has gained just 6%, and the stock is down 7% over the last 52 weeks. One technical indicator in focus is the 160-week moving average, which HOT surged above in March 2010 and has violated only twice in the ensuing years. The stock tested this trendline once again last week and was successfully buoyed higher, but today's put buyers will likely need the shares to violate this support in order to profit from their position.