Bulls Pile On as Smith & Wesson Holding Corp (SWHC) Rallies

Smith & Wesson Holding Corp (SWHC) is up nearly 20% after raising its quarterly guidance

by Karee Venema

Published on Jan 20, 2015 at 11:59 AM
Updated on Apr 20, 2015 at 5:32 PM

With earnings season in full swing, a number of firms are weighing in on their quarterly guidance. One such name is Smith & Wesson Holding Corp (NASDAQ:SWHC), which upped its fiscal third-quarter and full-year outlook, sending the shares 17.9% higher to $11.81. Options traders are responding in kind, scooping up calls at 18 times the average intraday pace. Additionally, the stock's 30-day at-the-money (ATM) implied volatility is up 7.7% to 36.1%, signaling elevated demand for SWHC's short-term contracts.

Drilling down, the security's February 12 call has seen the most action, and all signs suggest buy-to-open activity. Amid today's surge, delta on the call has jumped to 0.46 from 0.09 at last Friday's close, pointing to an increased probability of an in-the-money finish at the close on Friday, Feb. 20, when front-month options expire.

From a wider sentiment perspective, today's accelerated call activity marks a change of pace in the equity's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SWHC's 50-day put/call volume ratio of 1.58 ranks in the bearishly skewed 92nd annual percentile. Additionally, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.70 rests higher than all other readings taken in the past year.

This bearish positioning aligns more accurately with SWHC's technical backdrop, with the shares off nearly 32% since hitting a seven-year high of $17.28 on June 11. With almost 22% of Smith & Wesson Holding Corp's (NASDAQ:SWHC) float sold short, a portion of today's activity at the February 12 call could be a result of shorts hedging against any additional short-term upside.


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