Bearish Bets Build as Stone Energy Corporation (SGY) Sinks

Stone Energy Corporation (SGY) has lost 26% today after the oil-and-gas company said it will explore strategic alternatives

by Alex Eppstein

Published on Mar 11, 2016 at 2:10 PM

While plenty of oil-and-gas stocks are charging higher, such is not the case for Stone Energy Corporation (NYSE:SGY). At last check, the shares have plummeted 26.4% to trade at $2.15, after the company said it's considering strategic alternatives and has borrowed $385 million from its credit facility. This represents the stock's worst one-day percentage loss in seven years.

Sentiment is growing bearish toward SGY today, too. Earlier, Piper Jaffray lowered its rating to "underweight" from "neutral." Meanwhile, puts are changing hands at 12 times the expected intraday clip, with buy-to-open activity detected at the April 2 strike. These buyers are looking for SGY to breach $2 -- en route to all-time lows -- by the close on Friday, April 15, when back-month options expire.

Taking a step back, long calls have been the options of choice in the stock's options pits. SGY's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at a top-heavy 14.60 -- outranking 79% of comparable readings from the prior year.

These bets are not necessarily bullish, however. Given SGY's disastrous technical performance, and the fact that 24.2% of its float is sold short, it's possible short sellers have been purchasing calls to act as an upside hedge.

Should Stone Energy Corporation (NYSE:SGY) continue to underperform, more analysts could follow in the bearish footsteps of Piper Jaffray. At present, just one of eight brokerage firms recommends selling the shares -- leaving the door wide open for additional downgrades.

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