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Dick's Sporting Goods Bears Remain Unconvinced

Pessimism towards DKS remains steep on all corners of the Street

by 10/2/2012 10:46 AM
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Option activity flourished on Dick's Sporting Goods Inc (NYSE:DKS - 50.33) yesterday, with both calls and puts trading at accelerated levels. Puts easily emerged as the options of choice. More than 9,300 contracts crossed the tape, representing nearly 19 times the average daily put volume. Meanwhile, around 1,100 call contracts changed hands, roughly four times what was expected.

The most popular contract on the day was the October 50-strike put, which saw nearly 3,300 contracts trade. The majority of this volume crossed at the ask price, and volume outstripped open interest, pointing to buy-to-open activity. By initiating these long puts, traders will profit with each step south of $49.05 (the strike minus the volume-weighted average price of $0.95) DKS takes by October expiration. This represents a 2.6% drop from the stock's current perch.

Monday's preference for DKS puts is just business as usual in the options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than 21 puts have been bought to open for every call during the past 10 sessions. Plus, DKS' 10-day put/call volume ratio of 21.11 ranks higher than 97% of other such readings taken in the past year, indicating bearish bets have been picked up over bullish at a near annual-high clip in recent weeks.

Echoing this tendency toward puts is the stock's rising Schaeffer's put/call open interest ratio (SOIR). Since Sept. 24, DKS' SOIR has jumped to 2.91 from 2.04, as near-term put open interest has more than doubled. The current ratio ranks in the 96th percentile of its annual range, suggesting short-term speculators have been more put-heavy just 4% of the time within the last year.

Sentiment outside of the options arena has been pretty stiff, as well. Short interest rose by 7.2% during the last two reporting periods, and now accounts for a lofty 11.4% of the stock's float. It would take more than two weeks to cover these shorted shares, at DKS' average daily trading volume.

The skepticism is puzzling, given the equity's steady rise up the charts. On a year-to-date basis, DKS is sporting a solid 36% gain. What's more, the stock tagged a record peak of $54.24 on Sept. 19. Although recently pulling back from this technical milestone, DKS found a solid foothold atop its 60-day moving average -- a trendline that served as a springboard throughout August.

Going forward, a capitulation from some of the weaker bearish hands -- in light of DKS' strong technical showing -- could provide the stock with some contrarian tailwinds in the near term. At last check, the equity has added 0.4% in today's session to trade near $50.33.

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