Icahn-Induced Surge Puts Pep Boys-Manny Moe and Jack (PBY) Bears On Notice

Pep Boys-Manny Moe and Jack (PBY) is flirting with eight-year highs

Dec 21, 2015 at 10:46 AM
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Pep Boys-Manny Moe and Jack's (NYSE:PBY) board of directors said Carl Icahn's upwardly revised buyout offer -- which prices the company at $900 million, or $16.50 per share -- is superior to that of Bridgestone. The news is being well-received on the Street, with the shares last seen 6.3% higher at $16.75, and fresh off an eight-year peak of $16.80.

However, one group that may not be so pleased with the stock's bullish gap is option traders. During the past 50 sessions across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PBY has amassed a put/call volume ratio of 0.46 -- just 8 percentage points from a 12-month high. Of course, it's possible some of these put buyers are actually shareholders hedging against an unforeseen pullback in the stock, which has surged 70% in 2015.

No matter their motives, now is a good time to buy option premium on PBY. The stock's Schaeffer's Volatility Index (SVI) of 15% registers south of 86% of comparable readings from the previous year. In other words, from a volatility perspective, short-term options are relatively inexpensive right now.

Elsewhere, other traders are clearly bearish. During the latest two-week reporting period, short interest spiked 22.5%, and now accounts for 4.5% Pep Boys-Manny Moe and Jack's (NYSE:PBY) float. However, at the stock's average daily trading volume, it would take less than two sessions to cover these bets.

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