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Schaeffer's Daily Option Blog Beckons Bearish Traders

One bearish bettor is counting on an extended slide for CTRP

by 6/28/2012 2:04 PM
Stocks quoted in this article: International, Ltd. (NASDAQ:CTRP - 16.36) has been a technical laggard lately, shedding nearly 61% on a year-over-year basis, and declining more than 30% so far this year. The stock has also underperformed the broader S&P 500 Index (SPX) by roughly 17% during the past three months. On the charts, the equity continues to be guided lower by its 10-day and 40-day moving averages, which have contained the stock's rebound attempts since early March.

Given this technical weakness, it's no surprise that CTRP puts are flying off the shelves today. More than 7,700 of these options have changed hands so far, reflecting 15 times the equity's expected intraday volume. Most of the action has centered around the in-the-money September 18 strike, where a large block of 4,700 puts traded at the ask price of $2.60. However, this option is currently home to peak put open interest of 4,909 contracts, making it difficult to discern yet whether new positions are being added. If this particular trader bought these CTRP puts to open with the hopes of profiting on a continued decline, the stock must retreat below the breakeven of $15.40 by the time September options expire.

From a shorter-term sentiment scope, today's activity runs counter to CTRP's current trend. The 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 7.18, indicating that traders have bought to open calls over puts by a margin of more than seven to one during the past 10 sessions. This ratio arrives in the 94th percentile of its annual range, signaling that traders have been snatching up calls over puts at a much faster-than-usual clip. However, widening this time-frame to 50 days, puts have the upper hand on calls, as reflected by CTRP's put/call volume ratio of 1.68 -- which ranks in the bearishly skewed 78th annual percentile.

Another sign of the prevailing skepticism toward CTRP is the fact that short interest on the travel service provider ramped up by almost 5% during the past two reporting periods, and now accounts for a healthy 7% of the equity's float. This raises the possibility that some of the aforementioned call volume over the last couple of weeks is the result of hedging activity by short sellers.

Meanwhile, most of the analysts following CTRP appear to feel lukewarm, at best, toward the stock. Only three have deemed it worthy of a "buy" or better recommendation, compared to nine "holds" and one "strong sell" rating. However, the equity's average 12-month price-target still stands at a lofty $22.39, according to Thomson Reuters, reflecting a considerable premium to the security's current price. This leaves the door open for future price-target cuts, which could exacerbate CTRP's technical troubles.


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