Put Buying Ramps Up on ADP Stock as Shorts Scatter

Automatic Data Processing shares have failed to hold onto their late-July Ackman-inspired gains

Sep 15, 2017 at 2:42 PM
facebook X logo linkedin

Shares of Automatic Data Processing (NASDAQ:ADP) gapped higher in late July, on rumors Bill Ackman's Pershing Square Capital Management was buying a stake in the payrolls specialist. ADP stock went on to hit a record high of $121.77 on July 31. And while the security has since retreated alongside a significant drop in short interest, ADP options traders have been raising the bearish stakes.

Since topping out at their all-time peak, ADP shares are down 12%. The security gapped lower in mid-August after Ackman reiterated that Pershing's proposed shake-up of the company would likely involve the removal of CEO Carlos Rodriguez, though ADP issued a statement saying it "strongly disagree[s] with many of the assertions made by Mr. Ackman." While ADP found support in the $102 region, it has yet to fill its Aug. 17 bear gap, last seen trading at $106.87.

What's interesting is that the stock's retreat from record highs came amid a steady stream of short covering. Specifically, 10.52 million ADP shares are currently sold short -- a 27.7% drop from the 14.56 million shares in the Aug. 1 reporting period, an eight-year peak. In the latest reporting period alone, short interest fell 22%, or  $376.31 million in dollar-value changes, according to Schaeffer's Quantitative Analyst Chris Prybal -- the most of any stock during this time frame. The stock's inability to capitalize on this influx of buying power could point to underlying weakness.

Options traders, on the other hand, have preferred long puts over calls in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 35,566 puts in the past 50 sessions, compared to 20,035 calls. 

Drilling down, peak open interest of 13,244 contracts is found at the November 100 put, and data from the major options exchanges confirms buy-to-open activity here. In other words, options traders are betting on ADP breaching the round $100 mark by expiration at the close on Friday, Nov. 17 -- a time frame that includes Automatic Data Processing's Oct. 31 quarterly earnings report and Nov. 7 annual shareholders meeting. With ADP stock still up 22% year-over-year, this activity could be a result of investors hedging against any additional downside risk.

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI