Bears Pounce as Emerge Energy Services LP (EMES) Bottoms Out

Emerge Energy Services LP (NYSE:EMES) touched a record low earlier

Sep 25, 2015 at 11:32 AM
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Emerge Energy Services LP (NYSE:EMES) has plunged 27.4% to trade at $8.54, after the oilfield services firm withdrew its full-year distribution forecast, citing weak demand and lower pricing in its sand and fuels unit. Additionally, the equity received downgrades from Stifel to "sell" from "hold," and Baird to "underperform" -- with the latter also cutting its price target in half to $7. In fact, the stock also panned a record low of $8.50, and was placed on the short-sale restricted list. Collectively, this has caught the attention of bearish option traders.

Diving right in, EMES puts are changing hands at 16 times the expected intraday rate -- and outstripping calls. Eleventh-hour bears are on the prowl. Specifically, buy-to-open activity has been detected at the weekly 9/25 8.50- and 9-strike puts, as speculators wager on the underlying to close below the respective levels at tonight's close, when the series expires. On the flip side, longer-term traders are buying to open the January 2016 12.50-strike call, counting on a rebound over the next four months.

These bulls are more reflective of the trend we've seen lately in EMES' options pits. The stock's 10-day call/put volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a top-heavy 7.63 -- registering in the 87th annual percentile. Moreover, EMES' Schaeffer's put/call open interest ratio (SOIR) of 0.30 sits south of 99% of comparable readings from the past 12 months, indicating short-term speculators have rarely been more call-skewed.

Such confidence is shocking, given Emerge Energy Services LP's (NYSE:EMES) technical performance. Since the start of 2015, the shares have plunged 84%. A capitulation among those bullish holdouts could exacerbate selling pressure on the stock.

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