Overstock Volatility Expectations Surge Amid Bitcoin Blast

Bitcoin has led OSTK on a wild ride

Dec 14, 2017 at 2:35 PM
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Overstock.com Inc (NASDAQ:OSTK) is ready to go all in on blockchain -- the technology behind bitcoin -- at least according to CEO Patrick Byrne. After the company yesterday announced its blockchain division will create a for-profit venture with Peruvian economist Hernando de Soto, Byrne told CNBC that it is exploring three options to sell or reorganize the home goods e-commerce business. Here's a closer look at the wide ride OSTK has been on since announcing its digital currency initiative over the summer.

OSTK shares entered the month of August trading near $16.00, and in the red on a year-to-date basis. After the company announced it would begin accepting all major cryptocurrencies on Aug. 8, the shares began their meteoric rise -- surging as bitcoin hit new highs and bitcoin futures began trading. In addition to outperforming the S&P 500 Index (SPX) by more than 135 percentage points in the last three months, the equity is now up more than 73% since early August to trade at $60.10, not far from its Nov. 27 nearly 13-year peak of $65.70.

Call buyers have been blasting OSTK shares in recent weeks, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 15,572 calls have been bought to open in the last 10 days, compared to 5,774 puts.

The January 2018 95-strike call has seen the biggest rise in open interest over this time frame, with 5,100 contracts added. Data from Trade-Alert points to buy-to-open activity, suggesting options traders are eyeing a move to $95 over the next five weeks. The highest OSTK has ever traded was $77.18 in December 2014.

Given the equity's mind-blowing bitcoin burst, it's possible this activity is at the hands of vanilla options bulls. However, short sellers could also be initiating options hedges against any more upside risk. Short interest on OSTK shot 26% higher in the most recent reporting period to 7.32 million shares -- the most since August 2006.

Regardless of the reason, it's getting pretty pricey to purchase premium on short-term Overstock options. The equity's 30-day at-the-money implied volatility of 107.9% ranks in the 98th annual percentile, meaning extremely high volatility expectations are being priced into these near-term contracts.

 

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