Option Traders Hammer Stanley Black & Decker, Inc. (SWK)

Stanley Black & Decker, Inc. (SWK) is rising on a $1.95 billion acquisition of Newell Brand Inc's tool division, and option raders are closing in

Oct 12, 2016 at 12:44 PM
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Today, Stanley Black & Decker, Inc. (NYSE:SWK) announced it would be purchasing Newell Brand Inc's (NYSE:NWL) tools division for a whopping $1.95 billion in cash. Following the announcement, SWK is trading up 2.7% at $120.87, and options are crossing the tape at four times the average intraday pace.

The stock has been in a long-term uptrend for years, and touched a record peak of $124.86 just last week. However, the shares have run into resistance in the $122-$124 region since late July, and it looks like there's a few option players that are betting on a short-term floor.

Though SWK volume is light on an absolute basis, options are crossing at four times the norm, with puts nearly doubling calls. At this rate, daily option volume is set to hit the 99th percentile of its 12 month range. Some of the action appears to be of the sell-to-open variety at the October 115 put -- which is already the leading front-month open interest position -- indicating option sellers believe SWK will maintain its position above the $115 level through expiration on Oct. 21.

From a broader sentiment perspective, it's quite a different story. SWK's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 3.81 puts being bought to open for every call option over the last two weeks – a reading in the top 70% of SWK's annual range, signifying a healthier-than-usual appetite for bearish bets as of late. 

In addition, SWK's Schaeffer's put/call open interest ratio (SOIR) of 1.70, sits higher than 72% of all other readings from the past year, indicating a larger-than-usual appetite for puts among near-term option players. Specifically, the November 115 put is SWK's leading open interest position, followed by the aforementioned October 115 put. Both of these options have seen significant buy-to-open volume recently.

For option players hoping to get in the game, now looks like a good time to buy Stanley Black & Decker, Inc. (NYSE:SWK) near-term contracts. SWK's Schaeffer's Volatility Index (SVI) of 30% is in the bottom quartile of its annual range, implying near-term option traders are pricing in relatively muted volatility expectations

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