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Agrium Inc.'s (USA) (NYSE:AGU - 113.95) burst of positive price action on Thursday had bullishly slanted option players circling. Calls easily emerged as the options of choice, with more than 6,900 contracts changing hands on the day. By contrast, fewer than 950 puts crossed the tape. Short-term speculators placed bets on continued upside, and scooped up AGU's February 115 calls. A healthy portion of the 3,200 contracts traded here crossed at the ask price, implied volatility ticked higher, and open interest rose overnight -- indicating that a portion of yesterday's volume was of the buy-to-open variety.
In order for these out-of-the-money calls to be profitable, AGU needs to rise 2.4% to land above breakeven at $116.67 (strike price plus the volume-weighted average price of $1.67) by the close on Friday, Feb. 15, when front-month options expire. If the stock is unable to muscle above this mark over the next three weeks, the most yesterday's call buyers have risked is the initial premium paid.
For a stock that's gained 42% over the past 52 weeks, it's no wonder that calls have been preferred over puts for some time now. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly five calls for every put. The resultant call/put volume ratio of 4.97 ranks higher than 89% of other such readings taken in the past year, suggesting a healthier-than-usual appetite toward bullish bets over bearish in recent weeks.
Even more telling of this bullishly skewed bias is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.40. Not only does this show that call open interest more than doubles put open interest among options expiring in three months or less, but it ranks in the lowest percentile of its annual range. In other words, short-term speculators are more call-heavy now than at any other time within the last year.
As mentioned, the equity has been moving steadily up the charts for some time, finding a solid layer of support from its 32-week moving average. The stock jumped higher in yesterday's session, after the agricultural issue upped its fourth-quarter outlook. As a result, the security tagged a record peak of $115.08.
Today's round of bullish brokerage notes from the likes of Canaccord Genuity, Dahlman Rose, and Desjardins is only adding fuel to AGU's fire. At last check, the stock was up 0.2% to trade at $113.95.