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Speculative Bears Drink Up Monster Beverage

Put volume active in MNST today

by 12/10/2012 2:39 PM
Stocks quoted in this article:

Monster Beverage Corp (NASDAQ:MNST - 52.72) has been in the crosshairs of bearish speculators of late, as evidenced by activity in the options pits. First, the stock's Schaeffer's put/call open interest ratio (SOIR) weighs in at 1.16, meaning put open interest exceeds call open interest for options with three months (or fewer) until expiration. The ratio is higher than 86% of the past year's readings, indicating that pessimism in this form is higher than usual.

Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.58 puts have been bought to open during the last 50 trading days for every call. The put/call volume ratio of 1.58 is 10 percentage points shy of an annual high, suggesting this bearish speculation is near a peak for the year.

Today's option activity is more of the same, as more than 5,000 puts have traded -- roughly twice the expected intraday put volume and also double the number of calls crossing the tape. In the spotlight is the January 50 put, which has seen more than 3,100 contracts trade on open interest of just over 1,000. Data from the ISE suggests buyers have initiated a large portion of the activity, and implied volatility has moved 2.6 percentage points higher (also indicative of buying demand).

Indeed, one block of 1,798 contracts traded at the ask price of $1.70 and was likely bought to open. These put buyers are looking for MNST to be trading south of $48.30 (the strike less the premium paid) by the closing bell on Jan. 18, when these options expire. This represents a move of 8.4% below current levels, which would also bring the stock back below its 10-week moving average. MNST closed above this trendline on Nov. 30 for the first time since mid-July.

Weekly chart of Monster Beverage (MNST) since May 2012 with 10-Week Moving Average

In addition to increased put speculation, MNST is also seeing bearishness on the part of short sellers. Short interest increased by 20% during the last two reporting periods and has climbed 112% since early August. The bearish bandwagon is far from crowded, however; just 2.6% of the equity's float is currently sold short.

Recent MNST bears appear confident that the stock's recent technical headway will reverse course relatively soon. If the stock fails to falter by January expiration, however, all that is at risk for today's put buyers is 100% of the premium paid.


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