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Marriott Shareholders Seek Pre-Earnings Protection

Speculators scooped up the October 39-strike put on Friday

by 10/1/2012 10:41 AM
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There's been a developing trend toward Marriott International, Inc. (NYSE:MAR - 39.44) puts in the options pits. During the past 10 sessions, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 4.07 puts for every call, compared to MAR's 50-day put/call volume ratio of 2.03. Additionally, the shorter-term ratio ranks higher than 87% of other such readings taken in the past year, suggesting puts have been bought to open over calls at an accelerated clip in recent weeks.

Echoing this inclination is MAR's rising Schaeffer's put/call open interest ratio (SOIR). Since Sept. 24, the stock's SOIR has jumped to 1.19 from 0.73, as near-term put open interest grew 69.6%. Also, the equity's current SOIR reading ranks in the 58th percentile of its annual range, implying short-term speculators are more put-heavy than usual toward MAR.

Option players exhibited their preference for puts throughout Friday's session. Nearly 4,900 put contracts crossed the tape, representing more than eight times the average daily put volume. By comparison, fewer than 750 call contracts changed hands. Put players honed in on the October 39 strike, which saw more than 3,250 contracts trade. With the majority crossing at the ask price, and open interest climbing by 3,000 contracts over the weekend, we can assume new positions were bought to open here on Friday.

By initiating these long puts, traders expect MAR to fall below $37.95 (the strike minus the volume-weighted average price of $1.05) by October expiration. This represents a 3.9% slide from MAR's current perch. If the equity fails to breach this level, the most the speculators stand to lose is the initial premium paid.

On a technical basis, MAR is sporting an impressive 35.1% year-to-date gain. The stock's positive price action has been supported by its 32-week moving average. This trendline has ushered the equity higher throughout 2012, and served as a foothold for MAR's most recent string of consolidation attempts.

Given this respectable run up the charts, this current uptick in put volume may simply represent shareholders protecting their paper profits against a potential pullback. In fact, Marriott is scheduled to take its turn in the earnings confessional after the market closes on Wednesday, Oct. 3. The stock gave back more than 6% following a drop in revenue in its second-quarter report, which may be prompting concern of another post-earnings dip. In MAR's third-quarter, Wall Street is calling for a per-share profit of 40 cents on $2.65 billion in sales.

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