SeaWorld Stock Retreats After Citi Says 'Sell'

Increasing competition in Florida and California could create headwinds

Jun 12, 2018 at 12:57 PM
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Shares of SeaWorld Entertainment Inc (NYSE:SEAS) are trading down 0.6% at $20.88, after Citi downgraded the leisure stock to "sell" from "neutral," and maintained its $15 price target -- a 28% discount to the security's current price. The brokerage firm cited several risk factors, including increased competition from new Star Wars attractions in Florida and California, as well as rising forex costs -- which could negatively impact global attendance.

Heading into today's trading, SEAS stock had been rallying hard in recent months, and had more than doubled from its late-November lows. In fact, the shares topped out at a two-year high of $21.28 yesterday, and are pacing toward a third straight quarterly win -- their longest such streak to date. As such, the equity's 14-day Relative Strength Index (RSI) closed yesterday at 85, deep in overbought territory, suggesting a near-term pullback may have been in the cards.

seas stock price chart on june 12

Amid the stock's longer-term uptrend, options traders have been rushing to initiate long calls on SEAS. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 3.55 ranks in the 95th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

Considering SeaWorld Entertainment is heavily shorted, though, some of this activity could be at the hands of shorts initiating an options hedge against any additional upside risk. Currently, there are 22.32 million SEAS shares sold short, representing almost 43% of the equity's available float, or 7.6 times the average daily pace of trading.

Whatever the motive, it's a prime time to purchase premium on SeaWorld options. The equity's Schaeffer's Volatility Index (SVI) of 39% ranks in the 14th percentile of its annual range, indicating low volatility expectations are being priced into its short-term options.


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