Court Ruling Buoys Lumber Liquidators Holdings Inc (LL) Options Volume

Lumber Liquidators Holdings Inc (LL) is cruising higher after the retailer was vindicated in court

Apr 5, 2016 at 11:18 AM
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Lumber Liquidators Holdings Inc (NYSE:LL) is charging higher, after Bloomberg reported the company won a tentative ruling dismissing claims the retailer failed to warn customers sufficiently about potential carcinogens in its laminate flooring. Specifically, the stock is 13.5% higher at $14.56, and its call options are trading at four times the expected intraday rate -- and three times the pace of put options.

Drilling deeper, LL's weekly 4/8 14- and 15-strike calls are its most active options. All signs point to buy-to-open activity, suggesting short-term traders foresee the stock muscling even higher through week's end, when the series expires. On the other hand, slightly longer-term options players have initiated long positions at the April 12 put, expecting LL to retreat below $12 by front-month expiration, at the close on Friday, April 15.

Historically speaking, today's call buyers have much more company. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.49 calls for every put during the past two weeks. The corresponding call/put volume ratio outstrips four-fifths of all other readings taken in the last 12 months.

As a result, LL's Schaeffer's put/call open interest ratio (SOIR) of 0.74 ranks in the bottom percentile of its annual range. In other words, traders targeting options expiring in the next three months have never been so call-focused toward the shares, at least in the prior year.

Of course, not every call trader is necessarily a bull. With short interest rising 10.7% during the last two reporting periods and now making up 37.8% of the stock's float, it's possible speculators have been buying calls -- especially at out-of-the-money strikes --  to serve as protection against unexpected surges, like the one we're seeing today.

There's a reason short sellers have been mobbing Lumber Liquidators Holdings Inc (NYSE:LL) -- the stock has been a debacle on the charts. On a year-over-year basis, the shares have shed over 57% of their value. And while today's rally is a welcome sight for shareholders, LL is now tangling with resistance at its 200-day moving average.

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