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RadioShack Traders Bet On Record Lows

RSH skeptics scooped up November 2 puts

by 9/26/2012 9:45 AM
Stocks quoted in this article:

A few RadioShack Corporation (NYSE:RSH - 2.60) option bears could be shaking in their boots this morning, with the shares headed higher in early action. During the course of yesterday's session, the electronics retailer saw roughly 8,500 puts cross the tape -- about five times its average daily put volume, and more than three times the number of RSH calls exchanged.

Attracting notable attention was the November 2 put, which saw 2,150 contracts traded -- mostly at the ask price, suggesting they were bought. Plus, put open interest at the back-month strike ballooned by more than 2,000 contracts overnight, underscoring our theory of buy-to-open activity.

By purchasing the puts to open, the buyers were betting on RSH to extend its long-term slide over the next couple of months. Specifically, the puts traded at a volume-weighted average price of $0.17, meaning the buyers will profit if RSH breaches the $1.83 level (strike minus premium paid) -- marking a record low -- within the options' lifetime.

But yesterday's appetite for bearish bets was nothing new for RSH. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.28 ranks in the 73rd annual percentile. In other words, option buyers have scooped up RSH puts over calls at a faster-than-usual clip. As such, the equity's Schaeffer's put/call open interest ratio (SOIR) stands at a 52-week peak of 2.02, indicating that near-term traders haven't been more put-heavy during the past year.

Elsewhere, short interest accounts for nearly 42% of RSH's total available float, and would take about three weeks to unwind, at the equity's average daily trading volume. Meanwhile, not one of the 20 analysts following RSH deem it worthy of a "buy" or better rating.

As alluded to earlier, some of those bears could be jittery this morning, with the shares of RSH higher out of the gate. Bolstering the beleaguered security was news that Chief Executive James Gooch will step down effective immediately. "Moving forward with the decision sooner rather than later will help establish the right leadership to address the company's challenges," said company spokesperson Eric Bruner.

Nevertheless, the stock's upward momentum could be kept in check by resistance in the $3 region, which has stifled RSH's rebound attempts in recent months. Plus, the shares are staring up at their 10-day and 20-day moving averages, which have ushered RSH nearly 74% lower in 2012.

Daily Chart of RSH since January 2012 With 10-Day and 20-Day Moving Averages

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