Shipping Rally Lures Option Bulls to Nordic American Tanker Ltd (NAT)

Nordic American Tanker Ltd (NYSE:NAT) call volume hit an annual high, as options traders expect an extended rally for the shipping stock

Nov 16, 2016 at 3:11 PM
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Shipping stocks have been on fire since the presidential election, and Nordic American Tanker Ltd (NYSE:NAT) is no exception. While the equity isn't boasting the massive weekly percentage returns of sector peers DryShips Inc. (NASDAQ:DRYS) and Eagle Bulk Shipping Inc (NASDAQ:EGLE), NAT has added over 14% in the past five sessions to trade at $9.14, prior to which it was in two-year-low territory. What's more, options traders are boarding the NAT bullish bandwagon today.

NAT calls are trading at 14 times the average intraday clip, and are outpacing puts more than 7-to-1, with roughly 14,000 calls and fewer than 2,000 puts exchanged. In fact, NAT call volume has already surpassed its early February high of just under 11,500 contracts. Short-term, round-number calls are garnering the most attention, with buy-to-open action spotted at the November and December 10 calls. By purchasing the calls to open, the buyers expect NAT to muscle into double-digit territory by the respective expiration dates of Nov. 18 and Dec. 16.

Today's bullish betting is relatively rare for NAT option buyers, though. While absolute volume is typically light, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates that 2.33 puts have been bought to open for every call during the past 10 weeks. Echoing that, the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.01 suggests puts more than double calls among options expiring within three months. What's more, the stock's SOIR is higher than 93% of all other readings from the past year, pointing to a bigger-than-usual put bias among short-term speculators.

Options traders aren't the only group skeptical of NAT, though. Short interest edged 4.06% higher during the most recent reporting period, and now accounts for a healthy 18.1% of NAT's total float. In fact, it would take more than eight sessions to buy back these bearish bets, at the stock's average pace of trading -- plenty of fuel for a short-covering rally. Meanwhile, Wells Fargo initiated coverage this morning with a tepid "market perform" assessment. 

As alluded to earlier, Nordic American Tanker Ltd (NYSE:NAT) has been muscling higher over the past week, thanks to a sector rally and the company's well-received earnings on Nov. 10. However, the shares are still staring up at their 10-week moving average -- currently in the $9.50 neighborhood -- which led NAT to a loss of more than 50% from mid-June to last week. 

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