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Kansas City Southern (KSU) Put Players Turn Out On Ford Woes

Kansas City Southern (NYSE:KSU) is trading lower after Ford Motor Company (NYSE:F) canceled plans to construct a plant in Mexico

Jan 3, 2017 at 2:41 PM
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Put volume is soaring on Kansas City Southern (NYSE:KSU) this afternoon, as the stock tanks on news Ford Motor Company (NYSE:F) has canceled plans to construct a nearly $2 billion plant in Mexico that would have been built along the railway operator's lines. At last check, KSU stock was off 4.2% at $81.30, trading near levels not seen since mid-November. Meanwhile, in KSU's options pits, nearly 4,700 puts have changed hands -- seven times what's typically seen at this point in the day, and almost four times the number of calls traded.

This accelerated put volume marks a change of pace in KSU's relatively lightly traded options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 2.03 ranks in the 90th percentile of its 12-month range. In other words, calls have been bought to open over puts at a near-annual-high clip.

Along similar lines, the stock's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) is perched at 0.75, indicating near-the-money calls outweigh puts among options expiring in three months or less. Should the shares continue to struggle on the charts, an unwinding of the hedges related to these bets could apply additional pressure to KSU.

Outside of the options arena, short sellers have been upping the ante recently, with short interest up 4% in the most recent two-week reporting period. However, these bearish bets account for less than 3% of the stock's available float. The security could be at risk of additional headwinds, if short sellers continue to bet against KSU.

Looking at the stock's technical backdrop in recent months, there's been little to encourage confidence among investors. In fact, the stock gapped lower in the wake of the U.S. presidential election, and shares of Kansas City Southern (NYSE:KSU) -- which banked a significant portion of revenue from its Mexican operations in the first three quarters of last year -- have now shed more than 12% since their Nov. 8 close. Plus, the stock's subsequent rally attempts have quickly been contained by its descending 40-day moving average, a previous layer of support that could now be serving as resistance.

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