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Eagle Bulk Shipping Sees Rare Spike In Bullish Betting

Encouraging fundamental news has fueled heavy options activity on EGLE

by 6/21/2012 11:43 AM
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Options traders are flocking to Eagle Bulk Shipping Inc. (EGLE - 4.22) today, with the stock up more than 40% on news that the dry-bulk shipper has reached an agreement with lenders that will allow it to avoid bankruptcy. In late-morning trading, the security has seen roughly 1,800 calls and 7,400 puts change hands -- far surpassing its average intraday activity of fewer than 40 calls and 500 puts.

On the call side, investors are opening new positions at the August 3 and 4 strikes, as well as the out-of-the-money December 5 and 5.50 strikes, which have all seen volume exceed open interest. What's more, nearly all of the calls have crossed the tape at the ask price, pointing to buy-to-open activity. By purchasing the calls to open, the traders are expecting the shares of EGLE to surmount the strikes within the options respective lifetimes.

Meanwhile, it appears speculators may also be employing puts to place neutral-to-bullish bets on EGLE. Nearly all of today's put volume has centered on the out-of-the-money September 1 strike, which has seen close to 6,000 contracts change hands -- almost all at the bid price, suggesting they were sold. However, the back-month strike is already home to almost 23,750 contracts, making it difficult to determine whether new positions are being added. If the traders are, in fact, selling the puts to open, their primary goal is for the contracts to expire worthless, in which case they can pocket the initial premium received from the sale, which represents the maximum potential reward on the play.

Prior to today's encouraging fundamental news, puts were unsurprisingly the options of choice for EGLE, which has underperformed the broader S&P 500 Index (SPX) by 59% during the past two months. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 48.70, which stands just two percentage points shy of a 52-week peak. In other words, speculators have bought to open EGLE puts over calls at a near annual-high clip during the past couple of weeks.

Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) stands at a 12-month high of 8.29. Or, simply put, short-term puts haven't been more prevalent at any other time during the past year.

In the same vein, short interest soared 16.3% during the past month, and now represents 17.6% of the equity's total available float. In fact, at the stock's average daily trading volume, it would take more than two weeks to repurchase all of these pessimistic positions. Meanwhile, not one of the six analysts following EGLE considers it worthy of a "buy" or better endorsement.

At last check, EGLE has tacked on 40% to flirt with the $4.22 level. From a longer-term perspective, the security is attempting to tackle its 10-week moving average, which has rejected most of EGLE's weekly advances since late March. However, should Wall Street abandon the bearish bandwagon, an unwinding of skepticism in the options pits, a wave of upbeat analyst attention, or a short-squeeze situation could all translate into contrarian boons for the stock.


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