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Seagate Technology Bears Hope for an Extended Slide

Speculators zero in on STX's December series of options

by 11/14/2012 1:46 PM
Stocks quoted in this article:

Bearish trading has been running rampant on Seagate Technology PLC (NASDAQ:STX – 27.15) lately, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The security's 10-day put/call volume ratio checks in at 1.41, confirming puts bought to open have comfortably outstripped calls during the past two weeks. This ratio is just two percentage points shy of a pessimistic peak, meaning speculators have been snapping up puts over calls at a near annual-high clip.

This trend has carried over into today's session, as well. Roughly 16,000 STX puts have crossed the tape so far, which is 2.43 times the equity's expected intraday put volume, and almost double the number of calls exchanged. Most popular has been the December 26 strike, where more than 7,100 puts have traded at a volume-weighted average price (VWAP) of $0.90. The bulk of these out-of-the-money contracts changed hands at the ask price, hinting at buy-to-open activity. Implied volatility has climbed 2.2 percentage points during the course of the session, while today's volume has exceeded current open interest levels -- both of which point to newly established bearish bets. In other words, traders are counting on the stock to retreat below $25.10 (strike price minus the VWAP) by the time December options expire.

This bounty of pessimism is evident outside of the options pits, as well. Short interest on STX spiked by more than 27% during the last two reporting periods, and now accounts for a lofty 10% of the security's available float. In would take nearly four days to unwind these bearish bets, at the stock's average daily trading volume.

What's more, the majority of analysts following the data storage provider seem wary of STX. Only four have doled out "strong buy" ratings, compared to 14 lukewarm "holds" and one "sell" suggestion. Also, the security's average 12-month price target sits at $29.06, representing expected upside of just 4% to Tuesday's closing price of $27.93.

Meanwhile, a look at the charts shows that STX has gained roughly 66% year-to-date, and more than 59% during the past 52 weeks. However, the stock continues to trade below its 10-week moving average, which has served as resistance since mid-September. Today's bears could be expecting the equity's recent technical troubles to carry over into December -- giving their bought-to-open puts a chance of moving into the money.

At last check, STX is down 2.8% to trade at $27.15.


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