M&A Snag Slams Energy Transfer Equity LP (ETE)

Energy Transfer Equity LP (ETE) tempered expectations in its planned takeover of Williams Companies Inc (WMB)

Mar 24, 2016 at 3:00 PM
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Energy Transfer Equity LP (NYSE:ETE) is following the bearish lead of crude oil, down 2.4% at $6.99. Making matters worse, on the M&A front, the company tempered expectations for its $14 billion takeover of pipeline peer Williams Companies Inc (NYSE:WMB), explaining that low energy prices would offset potential cost savings. While ETE's sharp losses are nothing new, they're still not a welcome sight for bullish options traders.

During the past 50 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open 4.63 calls for every put. That top-heavy call/put volume ratio ranks in the 84th annual percentile, suggesting a stronger-than-usual preference for bullish bets over bearish in recent months.

Underscoring this bias, ETE's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.43, with calls more than doubling puts among options with a shelf-life of less than three months. Additionally, this SOIR sits below two-thirds of all comparable readings from the prior 12 months, confirming short-term traders are unusually call-skewed.

Not all of these call traders are necessarily bullish, though. Short interest soared 22.7% during the last two reporting periods to 60 million shares -- or roughly 8% of the stock's float. In other words, some call buyers may be short sellers hedging against an unforeseen jump in ETE shares.

As alluded to, Energy Transfer Equity LP (NYSE:ETE) is no stranger to technical struggles. Since hitting a record high of $35.44 in June, the stock has given back four-fifths of its value.

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