Honeywell International Inc. (HON) Earnings Beat Puts Option Bears On Notice

Options open interest is near annual-high levels for Honeywell International Inc. (HON)

Oct 21, 2016 at 11:58 AM
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After falling out of the gate, manufacturing stock Honeywell International Inc. (NYSE:HON) is back in positive territory, as Wall Street dissects the company's better-than-anticipated third-quarter earnings report. Ahead of the event, HON had been seeing increased options activity, with total open interest residing in the 99th percentile of its annual range. What's more, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) suggests traders have been betting on a downturn for HON shares. 

Specifically, put buying essentially outstripped call buying by a 5-to-1 margin during the past 10 weeks across these exchanges, with the resulting 50-day put/call volume ratio of 4.86 sitting just 6 percentage points from a 12-month peak. In a similar vein, HON stock's Schaeffer's put/call open interest ratio (SOIR) stands at 2.37 -- and in the 87th annual percentile -- meaning put open interest more than doubles call open interest among options expiring within three months. 

Looking at the past 10 days, in particular, puts accounted for four of the six most popular HON options, based on open interest added. At the same time, not all of this activity was of the bearish variety. The in-the-money November 100 put, for example, was the second-most-popular put during that time frame, yet data from the major options exchanges confirms substantial sell-to-open activity here -- indicating traders have been betting on HON holding above the $100 level. 

Outside the options pits, sentiment toward HON was somewhat mixed ahead of earnings. On the one hand, there was a huge influx of short sellers, with short interest jumping 64% in the two most recent reporting periods. However, 15 of 17 analysts recommend buying HON, and none say to sell. 

Honeywell International Inc. (NYSE:HON) has had an interesting year on the charts. At $109.05, the shares still hold a solid year-to-date lead of about 6%. Earlier this month, however, the stock suffered a major guidance-induced bear gap. (Speaking of which, this downbeat outlook may have prompted some of the aforementioned put buying, as shareholders could've been hedging their long positions ahead of earnings.) No matter the case, the downside gap was contained by the stock's 24-month -- or two-year -- moving average, which, along with the 36-month trendline, have contained HON drops since late 2011. 

Monthly Chart of Honeywell October 21

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