Stocks quoted in this article:
Despite being up around 1.5% in today's session, Dell Inc. (NASDAQ:DELL - 12.48) is being targeted by put players. Roughly 48,000 puts have crossed the tape so far, representing almost 19 times the average intraday volume. The most active strike thus far is DELL's February 11 put, which has seen more than 21,500 contracts change hands. The majority of these have gone off at the ask price, implied volatility was last seen 4.9 percentage points higher, and volume is outstripping open interest, making it safe to assume that new positions are being initiated.
By buying these out-of-the-money puts to open for a volume-weighted average price (VWAP) of $0.20, traders will begin to profit with each step south of $10.80 (strike minus the VWAP) DELL takes through the close on Feb. 15, at which point back-month options expire. This breakeven mark represents a 13.5% slide from the stock's current perch.
From a wider sentiment standpoint, option players have taken an optimistic stance toward DELL in recent months. During the course of the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 263 calls for every 100 puts on the stock. The resultant call/put volume ratio of 2.63 ranks higher than 93% of other such readings taken in the past year, suggesting calls have been scooped up over puts at a near annual-high clip throughout the past 10 weeks.
On the charts, DELL has been a technical standout over the past few months. In addition to outperforming the broader S&P 500 Index (SPX) by nearly 23 percentage points during the past 60 sessions, the shares have swelled around 43% since hitting a three-year low of $8.69 on Nov. 16. As mentioned, the stock is adding to these gains in today's session, after receiving some bullish brokerage attention amid rumors the computer concern is looking to go private.
In light of the stock's recent run higher, today's purchasing of out-of-the-money puts could simply represent shareholders protecting their profits against a potential pullback. With the stock's Relative Strength Index (RSI) of 72 wading in overbought waters, a near-term consolidation isn't necessarily out of the cards, particularly if the recent rumors are put to rest.