3 Stocks That Could Burn Short Sellers

B/E Aerospace Inc (NASDAQ:BEAV), Duke Energy Corp (NYSE:DUK), and Monster Beverage Corporation (NASDAQ:MNST) are among the stocks that have seen huge increases in short interest this year

Apr 1, 2016 at 2:30 PM
facebook twitter linkedin

Here at Schaeffer's, we pay a lot of attention to short interest. It's one of the key sentiment indicators that lends itself to our contrarian options trading philosophy. Recently, Schaeffer's Quantitative Analyst Chris Prybal took a look at the stocks that have seen the biggest increases in short interest this year. Among the names he discovered -- which we'll examine below -- are B/E Aerospace Inc (NASDAQ:BEAV), Duke Energy Corp (NYSE:DUK), and Monster Beverage Corporation (NASDAQ:MNST).

Short interest on BEAV has rocketed 181% year-to-date to nearly 7 million shares. More significantly, this is the second-highest reading since mid-2007, and it would take almost one week for short sellers to cover these positions, at the aerospace stock's average daily volume.

Based on what we're seeing in the options pits, some of these shorts may be hedging to the upside. BEAV's 50-day call/put volume ratio of 6.37 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) outstrips nearly three-quarters of all readings from the past year.

Potentially supporting that protective strategy is B/E Aerospace Inc's strength on the charts. At $46.30, the stock has rallied more than 9% year-to-date. However, if the shares continue to power higher, the unhedged shorts may be forced to unwind their bets -- resulting in a fresh wave of buying power.

It's a similar set-up for DUK. The energy stock's short interest has spiked 154% in 2016, despite the shares gaining 13% year-to-date to trade at $80.64. What's more, DUK touched an annual high of $81.21 earlier today. If the shares can keep hitting higher highs, a mass exodus of shorts could spell tailwinds.

Short-term options traders, meanwhile, have gravitated toward Duke Energy Corp calls. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.58 rests below all but 6% of readings taken in the last 12 months.

Finally, beverage issue MNST has watched short interest explode 114% year-to-date to 5.5 million shares -- an amount that would take about a week to cover, at the stock's average trading volume. Options traders have been betting bearishly, too. MNST's 10-day ISE/CBOE/PHLX put/call volume ratio of 2.74 ranks in the high 94th percentile of its annual range. By contrast, the brokerage crowd remains upbeat.

Technically speaking, Monster Beverage Corporation has been consolidating in the $130-$135 zone for the past month, and currently sits at $134.46. The stock bottomed at an annual low of $113.08 in early February, but took a quick bounce off its 100-week moving average. More recently, MNST has taken back its perch atop the 10-week trendline.


If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

Schaeffer's Investment Research Stock Pick Report


Special Offers from Schaeffer's Trading Partners