Lumber Liquidators Holdings Inc (LL) Settlement Has Options Pits Buzzing

Lumber Liquidators Holdings Inc (LL) is bouncing big on a $10 million settlement with the U.S. Justice Department

by Alex Eppstein

Published on Oct 9, 2015 at 2:08 PM
Updated on Jun 24, 2020 at 10:16 AM

Options volume is going through the roof on Lumber Liquidators Holdings Inc (NYSE:LL) this afternoon, after the company agreed to a $10 million settlement with the Department of Justice. The news is also lifting the shares, which were last seen 17.8% higher at $19.35.

Diving into the details, 21,000 calls are on the tape -- outpacing LL's normal afternoon rate by 19 times. At least one group of speculators is counting on eleventh-hour gains, buying to open the near-the-money weekly 10/9 20-strike call. In other words, these buyers anticipate LL will settle above the round $20 level at tonight's close, when the series expires. However, even if it doesn't, the most the speculators stand to lose is the initial premium paid.

Today's penchant for long calls reflects the withstanding trend in the options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LL has amassed a 50-day call/put volume ratio of 0.71 -- higher than 71% of comparable readings from the prior year.

However, it's possible some of these call buyers have another strategy in mind, given the stock's 71% year-to-date loss. With 45.3% of LL's float sold short -- representing 10.5 times the average daily trading volume -- these traders may be short sellers hedging their bearish bets with calls.

Meanwhile, analysts have taken a decidedly skeptical stance on Lumber Liquidators Holdings Inc (NASDAQ:LL). Ten of 12 brokerages rate the stock a "hold," and its consensus 12-month price target of $15.89 resides below the current perch.

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