Good News for Ocwen Financial Corporation (OCN) Bulls

Ocwen Financial Corp (NYSE:OCN) is up 20% today, thanks to a better-than-expected first-quarter forecast

by Karee Venema

Published on May 1, 2015 at 3:10 PM
Updated on Jun 24, 2020 at 10:16 AM

Call buyers have increased their presence in Ocwen Financial Corp's (NYSE:OCN) options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), OCN's 10-day call/put volume ratio has jumped to 3.96 from 0.53 over the past two weeks. What's more, the current ratio ranks in the 88th annual percentile, meaning calls have been bought to open over puts at a faster clip just 12% of the time within the past year.

Echoing this call-skewed trend is the equity's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.18, which indicates near-the-money call open interest outweighs put open interest by a more than 5-to-1 margin among options in the May-dated series. Drilling down, a number of call buyers have set their sights on the May 8 strike, where nearly 4,000 contracts are currently housed.

Outside of the options arena, sentiment is titled more toward the skeptical side. Short interest, for example, accounts for nearly 42% of the stock's float. As such, it's possible some of the recent call buying -- specifically, at out-of-the-money strikes -- is a result of shorts hedging against any upside. Elsewhere, five out of six covering analysts maintain a "hold" or "strong sell" rating on the stock.

It's no wonder some pessimism persists, given OCN's long-term troubles both on and off the charts. In fact, heading into today's session, the stock was staring at a 76% year-over-year deficit.

However, a better-than-expected first-quarter forecast has the shares up 20.1% this afternoon to trade at $10.20 -- and on track to close north of their 20-week moving average for the first time since last July. Also helping to buoy Ocwen Financial Corp (NYSE:OCN) is an upgrade to "buy" from "neutral" -- and a $2 price-target hike to $10 -- at Sterne Agee, which said, "It is clear that management has the liquidity in place to finance its ongoing operations, and is addressing both operational and profitability issues."


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