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Despite today's downgrade-induced drop, it seems TASER International, Inc. (NASDAQ:TASR - 8.42) still has quite a few fans in the option pits. In early afternoon trading, the stun-gun maker has already seen roughly 7,600 calls cross the tape -- more than 14 times its average midday call volume. For comparison, fewer than 300 TASR puts have changed hands thus far.
Digging deeper, nearly all of the volume has transpired at the January 10 and March 10 strikes, which have seen around 4,800 and 2,500 calls traded, respectively. Volume has outstripped open interest at both strikes, and the majority of the calls have crossed at the ask price, hinting at buy-to-open activity.
By purchasing the calls to open, the buyers are expecting TASR to muscle back into double-digit territory within the options' respective lifetimes. More specifically, the volume-weighted average price (VWAP) of the January-dated calls is $0.20, meaning the buyers will make money if TASR bounces back atop the $10.20 level (strike plus average premium paid) within the next couple of months. Meanwhile, the March-dated calls crossed at a VWAP of $0.36, meaning the buyers will profit if TASR topples the $10.36 level by March options expiration.
However, today's bullish betting stands in stark contrast to the norm. The stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 0.19 ranks in the 90th percentile of its annual range, suggesting option buyers have picked up TASR puts over calls at a quicker-than-usual step during the past two weeks.
Echoing that, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.25 stands higher than 78% of all comparable readings of the past year. Or, in simpler terms, near-term options traders are more put-skewed than usual right now.
Elsewhere on the Street, short interest accounts for about 6.8% of TASR's available float, representing more than a week's worth of pent-up buying demand, at the stock's average daily trading volume. Against this backdrop, it's possible that today's call buying could be attributable to hedging activity among the shorts. By purchasing the calls, short sellers can lock in an acceptable price to repurchase the shares, should TASR skyrocket within the options' lifetime.
Technically speaking, TASR has outperformed the broader S&P 500 Index (SPX) by more than 68 percentage points during the past three months. In fact, the equity just tagged a new three-year high of $9.26 earlier this week, sending its Relative Strength Index (RSI) to 78 -- in overbought territory. Today, however, the stock has shed around 6.7%, after analysts at J.P. Morgan downgraded the security to "neutral" from "overweight."