Put Volume Pops as Raytheon Company (RTN) Nears Poland Deal

Put options have been popular on outperforming Raytheon Company (NYSE:RTN)

Jul 5, 2016 at 1:55 PM
facebook X logo linkedin

Defense stock Raytheon Company (NYSE:RTN) is bucking the broad-market downturn today, last seen 1.2% higher at $136.43. Likely helping the stock advance is the prospect of a $5 billion missile deal with Poland, with the country's Defense Minister Antoni Macierewicz saying talks with the company have been "very, very promising, and one may say that a breakthrough has taken place." As we'll see, this outperformance is just more of the same for RTN stock, while options traders have been put-focused. 

For instance, RTN's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 5.89 -- an annual high. This tells us that puts have been bought to open over calls at the fastest pace in a year. 

While buying a put usually means a trader anticipates profiting on a decline in the underlying stock, RTN's long-term technical performance suggest these bets may not all be bearish in nature. To be more specific, the shares have steadily climbed to a one-year advance of 41%, and are now consolidating just below their record high of $137.34 -- with the stock topping out just a penny short of this mark earlier. As such, it seems likely that a good portion of this put-skew is a result of shareholders hedging against an unexpected downturn in RTN stock. 

A closer look at RTN's options pits shows that premium on near-term options is relatively muted, compared to other times in the past year. This is evidenced by the stock's Schaeffer's Volatility Index (SVI) of 16%, which lands in the 14th annual percentile. Combine this with the fact that RTN boasts a Schaeffer's Volatility Scorecard (SVS) of 71 -- meaning it has shown a tendency to make bigger-than-expected moves on the charts in the past year, compared to what the market has priced in -- and it may not be a bad time to consider purchasing RTN options. 

In fact, options volume is accelerated today, with puts trading at five times the intraday norm. This is mostly due to the nearly 3,000 contracts that have been exchanged at the out-of-the-money July 135 put, where the ISE confirms some sell-to-close activity. 

Elsewhere, there's little negativity coming from analysts. Fifteen brokerage firms track RTN, and just two rate it a "hold" -- with not a single "sell" opinion on the books. At the same time, there may be potential for price-target hikes from this bunch, since the stock's consensus 12-month price target now sits directly overhead at $141.13. 

Meanwhile, there was a notable 25% rise in short interest on Raytheon Company (NYSE:RTN) in the latest reporting period. Overall, however, a paltry 1.2% of the stock's float is sold short. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!




Rainmaker Ads CGI