Call Buying Hot on Downgraded Constellation Brands Stock

Call buying has been almost the hottest it's been in a year on STZ

by Josh Selway

Published on May 24, 2019 at 9:56 AM
Updated on Jun 24, 2020 at 10:16 AM

Constellation Brands, Inc. (NYSE:STZ) was hit with a downgrade this morning at Morgan Stanley, who admitted it's liked the stock for a while, but doesn't see the upside in the near term to warrant its "overweight" rating. Instead, it lowered its STZ opinion to "equal-weight" and cut its price target to $220 from $230. The covering analyst suspected slowing beer sales could hurt the Corona parent, with margins falling under pressure in the short term, as well.

The shares have fallen 3.4% in response to trade at $199.27, putting them back below their 320-day moving average, a trendline they've been consolidating near in recent weeks. While the equity remains in the black on a year-to-date basis, coming into 2019 at $160.82, they're staring up at last year's April 30 all-time high of $236.62.

Options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been buying calls at a rapid pace, however. The 10-day call/put volume ratio at these exchanges is 3.75, ranking in the 96th annual percentile, showing unusual demand for long calls.

Short interest has also been growing, shooting up 43.4% in the last two reporting periods. The 6.37 million shares held by short sellers is the most since 2013, and is 3.5 times the average daily trading volume.

No matter your stance on the stock, it's been quite volatile over the past year, based on the Schaeffer's Volatility Scorecard (SVS) of 94 out of a possible 100. What this shows is that Constellation Brands has regularly exceeded options traders' volatility expectations over the last 12 months.


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