Options Check-Up: Alcoa Inc., Peabody Energy, and Micron Technology

Analyzing recent option activity on Alcoa Inc (AA), Peabody Energy Corporation (BTU), and Micron Technology, Inc. (MU)

by Griffin Kruse

Published on Jan 6, 2015 at 8:11 AM
Updated on Apr 20, 2015 at 5:32 PM

Among the stocks attracting attention from options traders lately are aluminum magnate Alcoa Inc (NYSE:AA), coal issue Peabody Energy Corporation (NYSE:BTU), and semiconductor firm Micron Technology, Inc. (NASDAQ:MU). Below, we'll break down how option buyers are positioning themselves, and how much speculators are willing to pay for their bets on AA, BTU, and MU.

  • AA performed well in 2014, adding 48.5%. More recently, the stock underperformed the S&P 500 Index (SPX) by over 7 percentage points in the past month, and dropped 5.8% yesterday, landing at $14.96. Alongside this drop -- and ahead of the company's unofficial start to earnings season next Monday, Jan. 12 -- has come an uptick in bearish activity in the equity's options pits. Alcoa Inc's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.52 stands just 4 percentage points away from an annual peak. Additionally, AA's Schaeffer's put/call open interest ratio (SOIR) of 0.89 ranks higher than 86% of all similar readings taken over the past year, showing a bigger-than-usual preference for short-term puts over calls. Near-term bets are slightly more expensive than usual, as AA's Schaeffer's Volatility Index (SVI) of 39% is higher than 57% of all comparable metrics taken in the previous 12 months.

  • On the other hand, shares of BTU have been abysmal, shedding 62.1% year-over-year to sit at $7. The stock hit a fresh 13-year low of $6.92 in intraday action yesterday, before settling 9.6% lower on the day. Accordingly, sentiment in the equity's option pits is trending bearishly. Peabody Energy Corporation's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.41 ranks in the 55th percentile of its annual range, and the stock's SOIR of 0.85 sits 16 percentage points away from an annual high. In concurrence with this activity, BTU's SVI of 64% sits in the 73rd percentile of its annual range, showing that short-term options are expensive, from a historical standpoint.

  • MU had an exceptional 2014, gaining roughly 61%. Yesterday, however, the stock lost 2.8% to perch at $33.78, ahead of today's scheduled earnings report. Despite MU's long-term uptrend, bearish activity in the security's option pits is rising. Micron Technology, Inc.'s SOIR of 0.63 ranks in the 68th percentile of its annual range, while its 50-day ISE/CBOE/PHLX put/call volume ratio of 0.40 sits just 2 percentage points away from a pessimistic peak. Short-term options are averagely priced, historically speaking, as the equity's SVI of 49% sits in the 53rd percentile of its annual range. Short sellers have also taken an interest in the equity; short interest accounts for over 8% of the stock's float, which would take nearly five sessions to cover, at average trading volumes. If the shares of MU continue their upward mobility -- or if the company reports solid earnings tonight -- a short-squeeze situation could send the stock even higher. In fact, in the past four quarters, MU has averaged a single-session post-earnings gain of 3.7%.

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