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Avon Products Bulls Expect a Breakout

November call volume ramps up on AVP

by 9/25/2012 9:41 AM
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Bullish speculators have been showing a strong interest in Avon Products, Inc. (NYSE:AVP - 15.94) lately, if data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is any indication. In fact, the equity's 10-day call/put volume ratio checks in at whopping 161.41, confirming that traders have bought to open more than 161 calls for every put during the past couple of weeks. This ratio is just one percentage point shy of an optimistic peak, meaning options players have been snapping up calls over puts at an almost annual-high clip. What's more, the Schaeffer's Volatility Index (SVI) for AVP sits at 38%, which ranks higher than just 18% of comparable readings taken during the past year -- signaling that short-term options are relatively cheap at the moment.

Yesterday's AVP bulls certainly took advantage of this fact, as roughly 15,000 calls crossed the tape by the time the closing bell rang, which was 12 times the security's average daily call volume. By comparison, fewer than 900 puts were exchanged. The clear front-runner was the out-of-the-money November 18 strike, with close to 10,900 calls trading at a volume-weighted average price (VWAP) of $0.33 per contract. Nearly half of these bullishly oriented options changed hands at the ask price (and virtually none changed hands at the bid price), pointing to buyer-driven activity.

Meanwhile, open interest at this strike soared by 10,508 contracts overnight, signaling that most of the volume was comprised of newly added positions. By buying these calls to open, traders are betting on the stock to surmount $18.33 (strike price plus VWAP) by November expiration.

However, not everyone is feeling quite so confident about the shares of AVP. Only two "strong buy" recommendations have been issued to the beauty products maven, compared to 11 tepid "holds" and one "strong sell" suggestion among the analyst community.

From a technical perspective, AVP hasn't exactly been knocking it out of the park. The shares have surrendered about 21% during the past 12 months, and have shed more than 8% year-to-date. The security has also trailed the broader S&P 500 Index (SPX) by about eight percentage points over the last 60 sessions. On the charts, the stock remains pinned beneath the $17 mark, which has served as resistance since mid-May. Without a solid technical uptrend at its back, it remains to be seen whether the equity will tack on the 15% upside necessary for Monday's call players to collect a profit on their bullish bets by November expiration.

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