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Navistar Sees Rare Pop In Bullish Trading

NAV option bulls are flocking to short-term calls

by 10/8/2012 12:25 PM
Stocks quoted in this article:

The shares of Navistar International Corp (NYSE:NAV - 22.83) are flying in the face of broad-market headwinds, and it looks like the options crowd is anticipating an extended ascent for the stock. So far today, the truck titan has already seen more than 2,200 calls change hands -- more than double its average midday call volume, and close to three times the number of NAV puts traded.

Most popular have been the October 22.50 and November 20 calls, which have seen around 700 and 500 contracts exchanged, respectively. The majority of the calls have crossed at the ask price, and implied volatility was last seen higher by a respective 8.5 and 6.7 percentage points, hinting at buy-to-open activity.

The volume-weighted average price (VWAP) of the October 22.50 calls is $0.92, meaning the buyers will profit if NAV conquers the $23.42 level (strike plus VWAP) within the next couple of weeks. Meanwhile, the VWAP of the November 20 calls is $2.86, indicating a breakeven level of $22.86 for the buyers. However, even if NAV falls beneath these strikes within the options' respective lifetimes, the most the investors can lose is limited to the initial premium paid.

From a sentiment perspective, today's preference for calls marks a change of pace in the options arena. 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 1.02 stands higher than 71% of all other readings of the past year. Or, in simpler terms, options traders have bought to open NAV puts over calls at a faster-than-usual pace during the past couple of weeks.

Echoing that trend, the equity's Schaeffer's put/call open interest ratio (SOIR) has muscled to the 1.23 marker, indicating that puts are more prevalent than calls among options expiring within three months. Plus, this ratio sits just 13 percentage points from a 12-month peak, implying that near-term options traders have rarely been more put-biased during the past year.

Elsewhere, the rest of Wall Street is also pessimistically positioned toward NAV. Short interest soared 30.3% during the past month, and now accounts for a healthy 18.3% of the stock's total available float. Meanwhile, just four out of 15 analysts consider NAV worthy of a "buy" or better endorsement.

Technically speaking, the shares of NAV have underperformed the broader S&P 500 Index (SPX) by about 22 percentage points during the past two months, and have given up roughly 40% of their value in 2012. Today, however, the equity was last seen 7.6% higher, after the firm named Vincent J. Intrieri and activist investor Mark H. Rachesky to its board, and agreed to let Carl Icahn and Rachesky's MHR Fund Management LLC add a third director. Nevertheless, the stock is still staring up at its 10-week and 20-week moving averages, which have contained NAV's rebound attempts since late February.

Weekly Chart of NAV since February 2012 With 10-Week and 20-Week Moving Averages

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