Is Now the Time to Buy SeaWorld Entertainment Inc (SEAS) Options?

SeaWorld Entertainment Inc's (NYSE:SEAS) short-term options are currently pricing in relatively low volatility expectations

Mar 17, 2016 at 2:50 PM
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SeaWorld Entertainment Inc (NYSE:SEAS) is trading higher today, after the company announced that it would stop breeding orcas -- also known as killer whales -- in its theme parks. This follows the park's recent decision to phase out orca-based shows. SEAS policy shift is being well-received on Wall Street, but may have some bears sweating, inside and outside of the options pits.

Specifically, option traders have been betting against the security lately. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, speculators have bought to open nearly 18 SEAS puts for each call during the past two weeks -- a ratio higher than 79% of comparable readings from the past year.

Amid today's positive price action, however, SEAS calls are crossing the tape at nearly twice their average intraday rate (although puts still outnumber calls on an absolute basis). Quite a few traders appear to be buying to open the April 19 call, indicating some confidence that the shares will continue to rise over the next month.

Regardless of whether traders are buying puts or calls, now appears to be a prime time to purchase SEAS' short-term options. The stock's Schaeffer's Volatility Index (SVI) of 26% is lower than 88% of all readings in the last 12 months. That means short-term SEAS options are pricing in relatively low volatility expectations at the moment.

Looking elsewhere on the Street, skepticism is steep. For starters, over 23% of SEAS' total available float is sold short, accounting for almost seven sessions' worth of trading, at the stock's typical daily pace. Plus, analysts maintain five "hold" or worse ratings, versus just two "strong buys."

Technically speaking, SEAS has been chopping in the $17-to-$20 range since last June. Today, although the shares of SeaWorld Entertainment Inc (NYSE:SEAS) are up 7.4% at $18.39, the stock is running out of steam near its 50-day moving average -- a trendline that has contained SEAS since late February.

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