Diamond Resorts International Inc (DRII) Soars on Buyout News

Diamond Resorts International Inc (DRII) is soaring following news that the company will be bought

Jun 29, 2016 at 11:02 AM
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Hospitality interest Diamond Resorts International Inc (NYSE:DRII) surged 23.7% to $29.79 this morning on news that it has agreed to be bought by Apollo Global Management LLC (NYSE:APO) in a deal valued at $2.2 billion -- or $30.25 per share. The purchase price represents a 26% premium over DRII's Tuesday closing price, and today's rally has the stock well into positive-year-to-date territory.

The brokerage bunch was already in DRII's bullish corner, with all three analysts following the stock maintaining a "strong buy" rating. But short sellers could be scrambling to the exits as the shares climb toward their buyout price. At the moment, nearly 37% of DRII's available float is wrapped up in short interest. At the stock's typical pace of trading, it would take more than 18 sessions to cover all those bearish positions.

Speaking of pace of trading, DRII's is unsurprisingly through the roof today. The stock's volume has hit a new annual high, already tripling its previous 12-month peak roughly an hour into the session. Options traders have been busy, too, as DRII's total options volume tapped a new annual high within half an hour of the market's open. In fact, the stock's options -- typically light in volume -- were last seen crossing the tape at a whopping 49 times their average daily volume.

Speaking of DRII options, traders have shown a strong preference for calls of late. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators bought to open more than seven DRII calls for each put over the last 10 weeks. Likewise, the equity holds a Schaeffer's put/call open interest ratio (SOIR) of 0.23, indicating calls outnumber puts by more than 4-to-1 among options expiring in three months of less. What's more, this ratio sits lower than 93% of the past year's readings.

Options traders' optimism is not unwarranted. Shares of Diamond Resorts International Inc (NYSE:DRII) have added 84% since hitting an annual low of $16.19 in February. In fact, the stock has outperformed the broader S&P 500 Index (SPX) by 21.4 percentage points over the past two months.

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