Should SUNE, MPEL, and ADSK Be Avoided?

Call buyers have been upping the ante on Sunedison Inc (NYSE:SUNE), Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), and Autodesk, Inc. (NASDAQ:ADSK)

by Karee Venema

Published on Sep 18, 2015 at 11:41 AM
Updated on Jun 24, 2020 at 10:16 AM

Call buyers have been flooding into the options pits of alternative energy issue Sunedison Inc (NYSE:SUNE), casino concern Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), and software specialist Autodesk, Inc. (NASDAQ:ADSK). However, as option traders have been upping the bullish ante, these stocks have been sliding down the charts. From an Expectational Analysis® standpoint -- which may have helped pinpoint three stocks headed for higher highs yesterday -- this call-heavy set-up could have negative implications for this trio of laggards down the road.

Over 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 2.46 calls on SUNE for every put. What's more, this ratio ranks in the 62nd annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.

Speculators have shown particular interest in SUNE's September 12 call over this same time frame, with more than 26,000 contracts traded. According to the ISE, CBOE, and PHLX, it appears a significant number of these options have been bought to open in recent weeks. In other words, traders are expecting the stock to settle north of $12 at tonight's close -- when front-month options expire.

Today, however, shares of Sunedison Inc are down 1.9% at $11.41 amid a broad-market swoon -- extending their year-to-date deficit to 42%, and edging closer to single-digit territory. What's more, $12 could serve as a short-term ceiling, considering a hefty accumulation of call open interest currently resides at the 12 strike in both the September and October series of options.

MPEL, meanwhile, has seen 5,238 calls bought to open over the past 10 sessions at the ISE, CBOE, and PHLX, compared to just 164 puts. The resultant call/put volume ratio of 31.94 rests just 6 percentage points from a 52-week peak.

In recent weeks, the stock's weekly 10/30 18.50-strike call has seen significant action, and it appears the majority of traders have been purchasing new positions here. By buying to open the calls, speculators are betting on MPEL to close out the month of October above the strike price.

Technically, the shares have struggled in 2015, shedding 29%. Additionally, Melco Crown Entertainment Ltd topped out at an intraday peak of $18.46 earlier, but was last seen 1.7% lower at $18.08. Good news for the weekly 10/30 18.50-strike call buyers, though. Should the shares fail to make the move needed to topple $18.50, the most they stand to lose is the initial premium paid.

Finally, unlike analysts, option traders have taken the glass-half-full approach to ADSK in recent weeks. In fact, traders at the ISE, CBOE, and PHLX have bought to open 22,960 calls versus 561 puts over the last 10 days, resulting in a top-heavy call/put volume ratio of 40.93. Additionally, this ratio rests in the 96th percentile of its annual range, indicating long calls have rarely been initiated over puts at such a rapid rate.

Echoing this is ADSK's Schaeffer's put/call open interest ratio (SOIR) of 0.20. Not only does this suggest calls outweigh puts by a 5-to-1 margin among options expiring in three months or less, but it sits lower than 96% of all similar readings taken in the past year. Specifically, it looks as if call buyers have been initiating new positions at the security's September and October 50 strikes in recent weeks to bet on a round-number breakout.

It's not looking too good for the front-month bulls, even with today's 0.6% advance. Longer term, Autodesk, Inc. has surrendered 27.4% since topping out at a record high of $65 in late February, and hasn't traded north of $50 since Aug. 27. At last check, the shares were lingering near $47.17.

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