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Albertsons Buyout Buzz Shocks Rite Aid Shorts

Calls have been hot on heavily shorted RAD stock

Feb 20, 2018 at 9:29 AM
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Rite Aid Corporation (NYSE:RAD) stock is up 11.5% in electronic trading, after grocery chain Albertsons said it will buy the parts of the drugstore that are not being sold to Walgreens Boots Alliance (WBA) -- following last year's failed merger. RAD CEO John Standley will head the combined company, which is expected to bring in roughly $83 billion in annual revenue. The deal is expected to close in the second half of this year, with Albertsons expected to trade on the New York Stock Exchange (NYSE) after it is finalized, following 2015's shelved initial public offering (IPO).

Today's pre-market upside marks a change of pace to RAD's longer-term technical trajectory, with the stock down 63.7% year-over-year. And while Rite Aid shares have come off their Nov. 9 four-year low of $1.39, the rally was quickly contained by their 180-day moving average -- a trendline the security has not closed north of since mid-January 2017.

Options traders, however, have been buying to open calls over puts at a rapid-fire rate in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), RAD stock's 10-day call/put volume ratio of 14.63 ranks in the 74th annual percentile.

The stock's March and April 2.50 calls have seen notable increases in open interest over this two-week time frame, and data from the major options exchanges confirms buy-to-open activity. Considering more than 13.8% of RAD stock's float is currently sold short, it's possible some of the activity at these out-of-the-money calls is a result of shorts initiating an options hedge against any unexpected upside risk.

 

 

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