Lumber Liquidators Holdings, Inc. (LL): Is the Worst Yet to Come?

Lumber Liquidators Holdings Inc's (LL) April 20 put is popular today

by Karee Venema

Published on Mar 10, 2015 at 10:51 AM
Updated on Jun 24, 2020 at 10:16 AM

It's been a rough go for Lumber Liquidators Holdings Inc (NYSE:LL), which has shed more than half its value since its Feb. 24 close at $68.78, amid a number of fundamental follies. Today, however, the shares are on the mend, but considering the equity's 14-day Relative Strength Index (RSI) of 19 is wallowing in oversold territory, a near-term bounce may have been in the cards. Nevertheless, options traders aren't buying the bounce, and are scooping up puts at a rate four times the intraday average.

Most active is LL's deep out-of-the-money (OOTM) April 20 put, and it appears a portion of the day's activity is of the buy-to-open kind. In other words, these traders are rolling the dice on LL breaching the $20 mark by the close on Friday, April 17 -- when back-month options expire. LL hasn't explored the south side of $20 since February 2012, and, as such, delta on the put is docked at negative 0.11. Simply stated, the options market is giving the put a roughly 1-in-10 chance of an in-the-money finish.

Widening the sentiment scope reveals it's been calls, and not puts, that traders have been initiating at a faster-than-usual clip. Specifically, LL's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 0.75 ranks in the 74th annual percentile. With nearly 30% of the equity's float sold short, though, some of this call buying -- particularly at OOTM strikes -- could be a result of shorts hedging against any unexpected upside.

As touched upon, the stock is making an attempt at technical redemption today, and was last seen up 10% at $30.73. The company released its agenda for Thursday's conference call with investors, which will focus on recent safety-related allegations, its first-quarter forecast, as well as Lumber Liquidators Holdings Inc's (NYSE:LL) "next steps."


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