Option Bears Go Wild as Guidance Pounds Polaris Industries Inc. (PII)

Polaris Industries Inc. (PII) put options are trading at six times the usual intraday rate

Alex Eppstein
Sep 12, 2016 at 11:29 AM
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Polaris Industries Inc. (NYSE:PII) put options are absolutely popping, crossing the tape at six times the usual rate for this point in the session. Meanwhile, the stock has slumped 8% to $74.35, after the off-road vehicle manufacturer lowered its full-year guidance.

Today's sell-off could be shaking the confidence of Lau Associates, which has been accumulating shares of PII, according to a recent Barron's report (subscription required). In fact, Thomas Weary, the firm's chief investment officer, said "Polaris has a good long-term track record, with a 40% return on equity and a consistent history of raising the dividend. This is a great time to swoop in and buy shares."

Speaking of buying activity, options traders are likely purchasing new positions at the September and October 70 puts. In short, the speculators' goal is for PII to breach the round-number $70 mark by the respective expiration dates, at the close this Friday and on Friday, Oct. 21. Notably, the stock hasn't settled a week south of that level since June 2012.

Overall, options speculators have been quite bearish toward Polaris. The stock'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 a top-heavy 8.22, with long puts being initiated at more than eight times the rate of calls. Also, the corresponding put/call volume ratio outranks 92% of all readings from the prior year.

On top of that, PII's Schaeffer's put/call open interest ratio (SOIR) checks in at 4.14, in the 90th annual percentile. In other words, put open interest outstrips call open interest by a historically elevated margin, when looking at options with a shelf-life of three months or less.

Turning elsewhere on Wall Street, short sellers have been hitting PII hard. Over 23% of the stock's float is sold short, translating to nearly 14 million shares. Historically speaking, the current level of short interest hasn't been matched since April 2009, and it would take almost four weeks for these bears to cover their bets, at the equity's typical trading volume.

The nearly across-the-board negativity toward Polaris Industries Inc. (NYSE:PII) hardly comes as a shock. If anything, the stock has earned the skepticism, shedding more than two-fifths of its value on a year-over-year basis. Right now, PII shares are on track for their lowest daily close since late January.

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