Pacific Ethanol Inc (PEIX) Torches Option Bears with Earnings Beat

Pacific Ethanol Inc (NASDAQ:PEIX) option bears and short sellers didn't see this earnings beat coming

by Josh Selway

Published on Mar 10, 2016 at 12:39 PM

Pacific Ethanol Inc (NASDAQ:PEIX) is crushing option bears today by adding 27.1% to trade at $5.35, after the company posted a surprise quarterly profit, on an adjusted basis. More than two puts have been bought to open for every call during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting put/call volume ratio of 2.15 is higher than 95% of all readings from the past year

On a closer look, data at the ISE, CBOE, and PHLX confirms that traders have been buying to open the March 3 put during the past 10 sessions. By doing so, these bears may have been betting on a post-earnings slide below $3 for PEIX. And while the options don't expire until the close on Friday, March 18, their current delta sits at negative 0.029%, illustrating a slim 2.9% chance for an in-the-money finish. 

Options traders aren't the only ones hurting today. Short sellers control almost 14% of the stock's float, and it would take them roughly two weeks to cover their bets, at PEIX's average trading volumes. In other words, it would have been wise for these skeptics to buy options insurance ahead of the quarterly earnings event. Now, PEIX's rally could be extended if unhedged bears start to hit the exits. 

Analysts, however, are sitting on the right side of the fence today. All three brokerage firms covering PEIX say it's a "strong buy."

Longer term, the shares have struggled along with the broader energy sector -- they were, for instance, trading at over $10 this time last year. On the other hand, today's gain puts Pacific Ethanol Inc (NASDAQ:PEIX) back in the black on a year-to-date basis, and on pace to topple its 30-week moving average for the first time since June. 

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