Options Volume Spikes as Corrections Corp of America, The GEO Group Get Murdered

Corrections Corp of America (NYSE:CXW) and The GEO Group Inc (NYSE:GEO) options volume has skyrocketed, as the prison stocks sink on Department of Justice news

Aug 18, 2016 at 2:47 PM
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For-profit prison operators Corrections Corp of America (NYSE:CXW) and The GEO Group Inc (NYSE:GEO) are getting absolutely murdered today -- hands-down the two worst performers on the New York Stock Exchange -- after the Department of Justice said it will phase out its contracts with private prisons. The real estate investment trusts (REITs) were both halted earlier, after falling into territory not charted since early 2009, and landed on the short-sale restricted (SSR) list. However, demand for CXW and GEO options has skyrocketed today, with speculators placing some well-timed bets.

CXW was last seen 37% lower at $16.95, and earlier touched a seven-year nadir of $13.04. Stock and options volume has already hit an annual high, as has the equity's 30-day at-the-money (ATM) implied volatility (IV), which now sits at 138.5%.

CXW options are flying off the shelves at six times the average intraday clip, with the now deep-in-the-money August 25 put the most popular. A healthy portion of the puts were apparently bought to open around 11:35 a.m. ET today -- right around the first volatility halt -- for about $1, and since then the ask price of the puts has surged to $9.60.

However, even prior to today, CXW was no stranger to skepticism. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than eight puts for every call during the past two weeks. What's more, options open interest was already at an annual high, with puts more than quadrupling CXW calls. Meanwhile, short interest more than doubled during the past two reporting periods, and now represents 11 sessions' worth of pent-up buying demand, at Corrections Corp of America's (NYSE:CXW) average daily trading volume.

GEO is down 38.9% at $19.73, after tagging a seven-year low of $16.26 earlier. As with CXW, GEO stock and options volume has already hit annual-high territory, with options trading at a whopping 156 times the average afternoon clip. The equity's 30-day ATM IV has also skyrocketed to an annual high, last seen at 130.7%.

Among the most popular is the August 17.50 put, which it looks like some traders bought to open to bet on a drop beneath $17.50 by Friday's close, when front-month options expire. In addition, it looks like a few bears bought to open the August 30 put right around that first volatility halt, at 11:35 a.m. ET, when the ask price was $1.00 -- it's now going for $11.60.

Even before today, The GEO Group Inc (NYSE:GEO) options open interest was at an annual high, though calls slightly outnumbered puts. However, just under 2,800 total contracts were open on both sides of the tape, underscoring the severity of today's volume.


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