Put Buyers Pounce as Seagate Technology PLC (STX) Pans Lows

Seagate Technology PLC (STX) hit a two-year low earlier, following downbeat guidance

Oct 15, 2015 at 12:07 PM
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One of the worst performers on the Nasdaq at midday is Seagate Technology PLC (NASDAQ:STX), down 14.2% at a two-year low of $41.01, and on the short-sale restricted list. Sparking the sell-off was a weak fiscal first-quarter revenue forecast, which was followed by a downgrade to "buy" from "strong buy" at Needham, which also cut its price target to $50 from $55 -- mirroring an earlier note from FBN Securities. Amid this sharp price action, option traders are making their presence known.

In particular, puts are popular -- changing hands at seven times the normal intraday rate, and double the clip of calls. Front-month puts are especially active, and it looks like traders are initiating long positions at the October 42.50, 43, and 43.50 strikes, anticipating the stock will settle below the now in-the-money strikes at this Friday's close, when front-month options expire. However, even if STX rebounds above the strikes, the most the buyers stand to lose is the initial premium paid.

Such a bearish approach stands in contrast to the longer-term trend among speculators. STX's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.65 ranks in the 72nd percentile of its annual range. This indicates traders have been buying to open calls over puts at a faster-than-usual pace in recent months.

Along similar lines, STX's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.80, meaning short-term call open interest outweighs put open interest. This SOIR registers below 64% of comparable readings from the past year, hinting at a bigger-than-normal call-skew among speculators targeting the front three-months' series of options.

Looking ahead, Seagate Technology PLC (NASDAQ:STX) is slated to host its annual shareholder meeting next Wednesday. Should more bad news come down the pike, bullish traders may turn tail, potentially adding to the stock's 38% year-to-date loss.
 

 

 

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