3 Stocks for Your Bearish Watch List

Option traders have been initiating long calls at a rapid-fire rate on underperforming Chevron Corporation (NYSE:CVX), E I Du Pont De Nemours And Co (NYSE:DD), and InvenSense Inc (NYSE:INVN)

Sep 2, 2015 at 11:13 AM
facebook twitter linkedin

Schaeffer's Quantitative Analyst Chris Prybal recently routed an email highlighting a list of underperforming equities that currently have a low 10-day put/call implied volatility (IV) skew percentile rank. In other words, despite the stock losing ground on the charts, its call options are more expensive than put options -- signaling a higher demand for the former relative to the latter, and possibly flashing a contrarian signal. Three tickers on the list that caught our attention are oil-and-gas issue Chevron Corporation (NYSE:CVX), blue-chip chemical concern E I Du Pont De Nemours And Co (NYSE:DD), and motion tracking specialist InvenSense Inc (NYSE:INVN).

It's been a volatile run for CVX lately, given the roller-coaster ride crude oil has endured. For the most part, though, the majority of the equity's price action has occurred to the downside, with CVX staring at a 31% year-to-date deficit to trade at $77.94 -- and up at double-barreled resistance from its 20-day moving average and the round-number $80 mark.

Nevertheless, option traders have been initiating long calls over puts at a near-annual-high clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, CVX's 10-day call/put volume ratio of 1.83 ranks in the the 90th annual percentile. 

Since plunging below its formerly supportive 320-day moving average in early June, DD has been moving sharply lower. In fact, the shares have shed roughly one-quarter of their value under increased pressure from their 10-day moving average, and just touched a two-year low of $48.01 last week. Although the equity is trading higher today -- up 0.6% at $50.29 -- it's more than likely a result of broad-market tailwinds.

In the options pits, the stock's 50-day ISE/CBOE/PHLX call/put volume ratio of 3.46 sits higher than 86% of all similar readings taken in the past year, meaning calls have been bought to open over puts at a faster-than-usual clip. Echoing this is DD's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.49. which indicates near-the-money call open interest more than doubles put open interest among options expiring in three months or less.

Over the past 52 weeks, INVN has surrendered nearly 59% of its value. Additionally, an unconvincing rally attempt off its three-year low of $8.46 -- tagged on Aug. 24 -- was quickly halted by the equity's descending 20-day moving average, and at last check, the shares were lingering near $9.74.

Option traders have been waving the bullish flag, though, and at the ISE, CBOE, and PHLX, INVN's 10-day call/put volume ratio of 9.06 rests just 14 percentage points from a 52-week peak. Plus, the equity's SOIR of 0.62 sits below 98% of all similar readings taken in the last 12-months, suggesting short-term traders have rarely been as call-heavy as they are now.

From a contrarian perspective, such optimism surrounding three underperforming equities could spell trouble down the road. Should Chevron Corporation (NYSE:CVX), E I Du Pont De Nemours And Co (NYSE:DD), and InvenSense Inc (NYSE:INVN) continue to struggle, a capitulation from some of the weaker bullish hands could translate into a fresh wave of selling pressure.


Special Offers from Schaeffer's Trading Partners