Axiall Corp (AXLL) Shocks Bears With Big Breakout

Axiall Corp (NYSE:AXLL) has managed a more than 80% gain after rejecting a hostile takeover bid

Jan 29, 2016 at 2:52 PM
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It's been a great day for the stock market as a whole, but not many equities can claim an 81% burst. That's exactly what chemical producer Axiall Corp (NYSE:AXLL) has done today, though, with the shares jumping from Thursday's close of $9.80 to $17.80 at last check. This breakout can be attributed to the firm's rejection of a $1.4 billion takeover bid from Westlake Chemical Corporation (NYSE:WLK). Following today's pop, some AXLL options traders are likely counting their losses. 

By the numbers, AXLL's February 10 put has seen the largest increase in open interest over the past two weeks -- more than double the next closest strike. Data from the major exchanges confirms some traders were buying to open puts here, meaning they were hoping to see the shares drop further below $10 by front-month options expiration on Friday, Feb. 19. The chances of this happening have greatly diminished in light of today's rally, as evidenced by the option's delta shrinking from negative 50% as of last night's close, to just negative 1.3% today. 

Shuffling through the data some more, the recent preference for AXLL puts becomes even more clear. The stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 2.81 puts have been bought to open for every call. While this high absolute number is noteworthy in itself, this ratio's 88th annual percentile rank confirms the recent appetite for bearish bets is higher than usual among AXLL speculators. 

And yet, bears are still active. In fact, AXLL put volume is running at 10 times the average today, and ISE data confirms buy-to-open activity taking place at the March 15 put. With a volume-weighted average price (VWAP) of $1.11, these put buyers will need to see the chemical stock slide to $13.89 (strike minus VWAP) in order to profit from their wagers. 

Looking outside the options arena, short sellers, too, are probably hurting, with many of these bears entering their positions at exactly the wrong time. Specifically, short interest on AXLL surged by over 78% during the two previous reporting periods. 

That said, the pervasive bearish sentiment on Axiall Corp (NYSE:AXLL) is understandable, given the stock's horrendous technical showing. Before today's pop, the shares had underperformed the S&P 500 Index (SPX) by almost 49 percentage points in the past three months, and have trended steeply lower since peaking north of $51 last February. In fact, AXLL touched a six-year low of $9.04 just last week. 

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