New High Sparks Bullish Betting on Steel Dynamics, Inc. (STLD)

Calls are trading at eight times their expected volume as Steel Dynamics, Inc. (STLD) rallies to a new seven-year high

Jun 8, 2016 at 1:07 PM
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Steel Dynamics, Inc. (NASDAQ:STLD) is getting a boost from a price-target hike to $33 from $27 at Credit Suisse, which also shed some bullish attention on a couple of STLD's sector peers. The upbeat news has the shares up 5.1% to $26.84, and just off a fresh seven-year high of $26.99. Call players have rushed to the stock's options pits today, where these bullish bets are changing hands at eight times their usual intraday pace, as many traders bet on higher highs.

So far 8,977 STLD calls have been traded, outnumbering the 546 puts by a margin of roughly 16-to-1, and landing call volume in the 98th percentile of its 12-month range. In fact, all 10 of the stock's most active options today are calls, with the top spots belonging to the June and July 27 calls, followed by the August and July 28 calls. Some buy-to-open action has been detected at each of these strikes, meaning call buyers are betting that STLD will hit multi-year highs in the coming months.

Option buyers are also getting a great bargain on premium for the stock's near-term contracts at the moment. STLD has a Schaeffer's Volatility Index (SVI) of 28% -- in the low 7th percentile of its annual range -- while its 30-day at-the-money implied volatility sits lower than 99% of the past year's readings, at 27.7%. This means that short-term options are pricing in historically low volatility expectations.

While a preference for STLD calls has been growing in recent weeks, today's overwhelmingly call-heavy action represents a huge shift for the stock. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 1.49 shows long puts with a clear lead over calls. What's more, this ratio sits higher than 79% of all readings in the last 12 months.

Options traders may just now be jumping on the stock's bullish bandwagon, but analysts were already optimistic. Specifically, 11 out of 12 brokerage firms that have issued coverage rate the security a "buy" or better, with the remaining one doling out a lukewarm "hold."

And these upbeat opinions seems more than warranted, considering STLD has added more than 50% in 2016 alone. In fact, the shares have been marching higher since late January, with their most recent pullback support by their rising 10-week moving average. If remaining option bears flee from their losing positions, Steel Dynamics, Inc. (NASDAQ:STLD) could get the extra fuel it needs to keep its rally alive.

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