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Struggling RadioShack Attracts Even More Bears

Put players are wagering on RSH's technical predicament to get even worse

by 7/2/2012 10:12 AM
Stocks quoted in this article:

RadioShack Corporation (NYSE:RSH - 3.85) drew the attention of bearishly biased options players on Friday, with put volume rising more than two times the expected level. During the course of the session, a total of 3,819 puts changed hands on RSH, compared to only 1,292 calls. This bearish activity coincided with RSH's second consecutive weekly close below $4, and its worst monthly settlement ever, which exacerbated the shares' 72% year-over-year deficit.

The most active strike on Friday was RSH's August 3.50 put, where 2,939 contracts changed hands. Two large blocks traded at the ask price, indicating that buyers were responsible for the majority of the volume. Open interest on the August 3.50 put rose over the weekend by 2,819 contracts, confirming that new bearish bets were added at this out-of-the-money strike. By purchasing these puts, traders believe that the security will extend its downtrend and slip below $3.50 by August expiration.

This skeptical skew is nothing new for beleaguered RSH. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 2.34 puts for every call. This ratio arrives in the 93rd percentile of its annual range, signaling that traders on these exchanges have rarely purchased puts over calls at a faster pace during the past year.

Plus, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.33 is at an annual pessimistic peak, suggesting that short-term speculators have never been more negatively aligned toward RSH over the past year. Meanwhile, 38.6% of the stock's float is dedicated to short interest. In fact, at RSH's average pace of trading, it would take almost 12 sessions for all of these bearish bets to unwind.

Right after the opening bell, RSH is trading just above breakeven, but is staring up at the recently breached $4 level.


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