Lumber Liquidators Holdings Inc (LL) Call Options Fly Amid Takeover Talk

Lumber Liquidators Holdings Inc (LL) call options are trading at 11 times the usual intraday rate

Sep 21, 2016 at 2:58 PM
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Lumber Liquidators Holdings Inc (NYSE:LL) has surged nearly 8% to trade at $16.84 amid unsubstantiated takeover talk -- much like this motorcycle maven. As the stock explodes, so too are its options pits, especially on the call side of the aisle.

Diving right in, over 4,700 LL call options are on the tape -- 11 times the expected intraday volume of 400 contracts. In the lead is the weekly 9/23 16.50-strike call, where traders are purchasing new positions in hopes the shares will extend their lead north of $16.50 by Friday's close, when the series expires. Of note, the stock hasn't ended a week atop the strike since mid-July.

Taking a step back, traders have bought to open over five calls for every put during the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resultant call/put volume ratio of 5.47 ranks in the bullishly skewed 81st percentile of its annual range.

That said, it's also possible short sellers have been purchasing calls to act as an upside hedge. After all, over 35% of LL's float is sold short, and at its average trading rate, it would take over two weeks to cover these bearish bets.

Short sellers are joined in the skeptical camp by the analyst community. Of the nine brokerage firms tracking LL, not a single one considers it worthy of a "buy" rating. Specifically, eight analysts have handed out a tepid "hold" recommendation, while one maintains a "strong sell" opinion.

Technically speaking, some of this pessimism may spring from Lumber Liquidators Holdings Inc's (NYSE:LL) abysmal long-term chart. In late 2013, for example, the shares were hovering around $120. While the stock has tumbled dramatically since then due to a string of product safety scandals, it's also been stair-stepping higher since its late-February low just above $10.

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