2 Surging Gun Stocks Stalling Near Key Technical Levels

Call volume is accelerated in American Outdoor Brands options pits today

Oct 2, 2017 at 1:19 PM
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Gun stocks are soaring today, after last night's fatal shooting in Las Vegas -- which is being called the deadliest mass shooting in U.S. history. The attack has increased expectations that gun sales will skyrocket ahead of a possible revived gun control debate in Washington. Among the names participating in the sector-wide surge are American Outdoor Brands Corp (NASDAQ:AOBC) and Sturm Ruger & Company Inc (NYSE:RGR), with both stocks now trading near key technical levels.

AOBC Options Traders Bet on Bigger Gains

American Outdoor Brands stock was last seen trading up 379% at $15.81. The shares topped out at an intraday high of $16.50 earlier -- a neighborhood AOBC was trading in just before an early September earnings-induced bear gap. The equity is now back below $16, too, which represents a 23.6% Fibonacci retracement of its June-to-September decline.

aobc daily chart oct 2

Despite the stock's longer-term technical troubles -- AOBC is down more than 44% since hitting an annual high on Nov. 8, the day before the U.S. presidential election -- options traders today are betting on more upside for the shares. Call volume has surged to eight times what's typically seen at this point in the day, with buy-to-open activity detected at the November 17.50 strike. AOBC shares haven't traded north of $17.50 since Aug. 29.

RGR Short Sellers Have Been Jumping Ship

Sturm Ruger shares were up 6.6% at their intraday peak, but were last seen trading 3.7% higher at $53.60. Containing the stock was the $55 level, which coincides with its pre-election bear gap lows, as well as a 38.2% Fibonacci retracement of RGR's decline from June to September. The shares are now clinging to positive year-to-date territory, up 1.7%.

rgr stock daily chart oct 2

While options trading has been relatively light on Sturm Ruger -- total open interest is made up of just 11,835 contracts -- short sellers have been jumping ship on the gun stock en masse in recent months. Since topping out at a three-year high in early April, short interest has plunged almost 36% to 3.95 million shares, though this still accounts for a healthy 22.7% of RGR's available float.

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