Frontier Communications Corporation (FTR) Bulls Come Out of Hiding

Frontier Communications Corp (NASDAQ:FTR) calls are popular for once

Jun 3, 2015 at 1:29 PM
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Frontier Communications Corp (NASDAQ:FTR) is up 6% at $5.47 today, thanks to an upgrade to "buy" from "neutral" at D.A. Davidson. However, the brokerage firm also lowered its price target to $6.50 from $7. Separately, Macquarie cut its price target by $1 to $6.75. In the meantime, call players have stepped up, with the contracts running at 11 times the expected intraday pace.

So far, over 24,000 calls have been exchanged, compared to just 3,600 puts. One of the more popular contracts is the June 6 call, and it appears traders are buying it to open. By doing so, they're putting their faith in FTR to take out $6 for the first time since May 11, by the time the market closes on Friday, June 19, when the options expire. Delta on the contract has jumped from 0.096 at yesterday's close to 0.25, meaning there's a 1-in-4 shot of the option finishing in the money at expiration.

Today's option activity on FTR is extremely unusual. In fact, over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than five puts have been bought to open for each call. Also, the resulting 50-day put/call volume ratio of 5.50 is only 7 percentage points from an annual high, showing a stronger-than-usual appetite for puts over calls.

This pessimism extends beyond the options pits. Looking at FTR's float, almost 112 million shares are controlled by short sellers. Furthermore, it would take these bears close to seven days to cover their bets, at the stock's normal trading pace.

Outside of today, shorts are likely pleased with their choice. Looking back, Frontier Communications Corp (NASDAQ:FTR) has lagged the broader S&P 500 Index (SPX) by 32.6 percentage points in the past three months.

 

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